The Outlook for Employment and Unemployment Rob Valletta* Federal Reserve Bank of San Francisco *The views expressed are solely my own and are in no way attributable to the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. I thank Katherine Kuang for outstanding research assistance.
Overview Long-term unemployment: is it structural? Recent pickup in job loss Look for modest job growth ahead
Long-term unemployment at historic high Percent 12 Unemployment Rate and Duration Percent (all unemp) 50 Sep/11 10 40 8 Unemp. Rate (left axis) 30 6 20 4 Unemp 27 weeks+ (right axis) 10 2 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Bureau of Labor Statistics 0
Average duration still rising Measures of unemployment duration Percent 5 Weeks 50 Sep/11 4 40 3 % LT Unemployed (left axis) 30 2 Average 20 1 10 Median 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 0 Source: BLS and FRBSF calculations. Percent of long-term unemployed is the number unemployed for >6 months as a share of the labor force.
Is it Structural? Multiple variations on structural unemployment (1) Often equated with persistent (long-term) unemployment; but this can be cyclical (disappears as economy recovers) (2) mismatch between skills/location of workers and jobs (common definition) (3) sources of unemployment (other than frictional ) that contribute to a higher equilibrium natural rate of unemployment or NAIRU ( non-accelerating inflation rate of unemployment ). My view: moderate amount of type 3 (currently about 1 percentage point), will largely dissipate (see Daly-Hobijn-Valletta 2011; FRBSF WP 2011-05)
Beveridge Curve suggests mismatch U.S. Beveridge Curve Monthly, December 2000 to August 2011 Vacancy Rate 4.0 3.5 3.0 3.1% points 2.4% points 7/11 1/11 8/11 4/10 3/10 2.5 2.0 10/09 3 4 5 6 7 8 9 10 11 Unemployment Rate Source: BLS, JOLTS, and CPS data. Dotted blue series indicates fit of values from December 2000 to June 2009. 7/09 1.5
Cross-industry dispersion has declined Dispersion Across 15 Major Industries Percent 7 6 5 Employment Growth Aug/11 4 3 2 Unemployment rate Sep/11 1 1970 1975 1980 1985 1990 1995 2000 2005 2010 0 Source: Bureau of Labor Statistics and FRBSF calculations
Cross-state dispersion also down Dispersion Across States Percent 3.5 3.0 Employment Growth Aug/11 2.5 2.0 1.5 1.0 Unemployment rate 0.5 1975 1980 1985 1990 1995 2000 2005 2010 0.0 Source: Bureau of Labor Statistics and FRBSF calculations. Series include 50 states plus DC.
Little or no house lock effect Unemp Duration by Home Ownership (MSAs with large price declines) Weeks 50 40 30 Renters 20 Owners 10 2005 2006 2007 2008 2009 2010 Note: FRBSF calculations from monthly CPS micro data. Duration measured in expected completed form. MSA house prices from FHFA, change measured over 2007-2010Q2. 0
Moderate effect of UI extensions UI extended up to max of 99 weeks in Nov. 2009 (Effect on unemp duration and rate: maxed ~0.5-1.0 p.p.) Unemployment Durations, by UI Eligibility 3-month averages, seasonally adjusted Weeks 40 30 Quits/entrants (UI ineligible) 20 Job losers (UI eligible) 10 2005 2006 2007 2008 2009 2010 Note: FRBSF calculations of expected completed duration from CPS micro data. Dashed vertical lines indicate effective dates for expansions of maximum UI duration under EUC08 and EB. 0
Main cause of LT unemp: huge job loss Nonfarm Payroll Employment: 4 Recessions (relative to pre-recession peak) Peak=100 106 1981-82 104 102 1990-91 2001 100 98 96 2007-09 94-6 0 6 12 18 24 30 36 42 Months since employment peak Source: Bureau of Labor Statistics 92
.followed by jobless recovery Nonfarm Payroll Employment: 4 Recessions (relative to recession trough) 1981-82 Trough=100 110 108 106 104 1990-91 102 2007-09 100 2001-6 0 6 12 18 24 30 Months since employment trough Source: Bureau of Labor Statistics 98
Net labor demand still weak Ratio of Unemployment to Vacancies Ratio 8 7 6 5 Aug. 4 3 2 1 1976 1981 1986 1991 1996 2001 2006 2011 Source: Bureau of Labor Statistics and FRBSF calculations 0
Bottom line re structural: should be able to re-attain 5-6% unemployment How about recent developments?
Recent increase in job loss Monthly Layoff Rates (% of payroll employment) 3-month moving averages, seasonally adjusted Percent 2.5 2.0 New UI Claims (thru Sep.) 1.5 Job Losers (CPS; thru Sep.) 1.0 2001 2003 2005 2007 2009 2011 Source: Department of Labor, Bureau of Labor Statistics, and FRBSF calculations 0.5
S&L government layoffs up recently CPS Layoff Rates 3-month moving averages, seasonally adjusted Percent 2.0 All workers Aug/11 1.6 1.2 State & Local Gov. 0.8 0.4 2000 2002 2004 2006 2008 2010 Source: FRBSF calculations using CPS micro data 0.0
Modest net job growth Payroll Employment % change over 12 months Percent 8 6 Private Sep/11 4 2 Government 0-2 -4-6 2000 2002 2004 2006 2008 2010 2012 Source: Bureau of Labor Statistics. Government excludes temporary Census employees. -8
Conclusions Elevated long-term unemployment largely due to weak aggregate demand Short-term employment outlook eased, but moderate growth in private sector jobs expected Offset by government job losses