2.8 Million Construction Jobs Are Missing

In Saturday’s Wall Street Journal Timothy Aeppel wrote an interesting article noting that manufacturing employment has recovered only 22% of the nearly 2.3 million jobs lost during the 2008-2009 recession.  While this is true the U.S. economy and labor market can flourish despite declining manufacturing employment.  In fact, declining manufacturing employment has been the norm in the U.S. for decades.  Manufacturing employment peaked at 19.5 million jobs in 1979.  Since then the manufacturing sector has lost 7.5 million jobs as 53 million jobs were created outside the manufacturing sector.

The decline in construction employment over the past five and a half years, however, is troubling and atypical of recent economic recoveries.  Normally investment in residential housing by households and structures by businesses increases rapidly in recoveries as these investments were deferred and delayed during the recession.  A comparison of the pattern of construction employment in this recession and recovery to comparable periods during and after the 1981 and 2001 recessions reveals some clear patterns:

  • Construction employment declined more than three times as much (26%) during the 2008-2009 recession as it did during the 1981 recession and more than 11 times as much as during the 2001 recession.
  • Construction employment is about 1.7 million (22%) below its pre-recession peak five and one half years after the recession began.
  • Five and one half years after the beginning of the 1981 and 2001 recessions construction employment had increased to about 15% above its pre-recession peak.

The following chart compares construction employment across the 1981, 2001 and 2008-2009 recessions normalizing employment to be 100 at the start of each recession.  The chart tracks construction employment in each recession/recovery for the subsequent five and one half years.

Construction1

The magnitude of the decline in construction employment during the 2008-2009 recession was unprecedented.  The absence of a recovery in construction in employment during the subsequent recovery is also unprecedented.  Had construction employment rebounded over the past few years as it had in previous recoveries, there would be 8.6 million workers in the construction sector instead of the current total of 5.8 million construction employees.  The net difference represents a shortfall of 2.8 million jobs in the construction sector.  Construction employment remains well below the levels of six years ago because businesses are investing less in structures than they did in previous recoveries and the residential housing market has not recovered as strongly as it has in other recoveries.

The shortfall of 2.8 million construction jobs is equivalent to the difference between the current unemployment rate of 7.4% and a 5.6% rate.  Of course, if the economy were strong enough to generate an additional 2.8 million construction jobs there would also be more robust growth in income and employment in other sectors of the economy lowering the unemployment rate even further.

The sharp decline in employment in the construction sector since 2008 and the fact that only 8% of construction jobs have been regained during this economic recovery is extremely troubling.  Construction differs from manufacturing because jobs can’t easily be outsourced to foreign countries.  While manufacturing’s share of total employment has declined steadily for decades, construction’s share of total employment grew steadily for three decades from 1978 to 2008 until the sharp decline over the past five and one half years.  The following chart illustrates the sharp drop in construction employment since 2008.

Construction2

In my view the continued weakness in the construction sector underscores a failed opportunity for those who advocate public investment in infrastructure.  The past five and one half years have seen an unprecedented slowdown in construction activity and employment.  Over two million construction workers lost their jobs in the deep recession and have remained displaced through a tepid recovery.  At the same time we have not chosen to re-build and repair our roads, bridges and infrastructure while there is an excess supply of construction labor and interest rates are low.  Government expenditures have been diverted from infrastructure to other programs such as a record extension of unemployment insurance benefits (over one billion weeks worth of UI benefits have been paid since 2008).

More importantly, the fact that the recession officially ended four years ago yet construction employment remains in a slump is a clear indication of the weakness of this economic recovery.  As the recovery officially enters its fifth year households are still unwilling or unable to purchase new houses and businesses lack the confidence and demand for their products to invest in offices, factories, warehouses and other facilities.  Until the construction sector rebounds because households and businesses are willing and able to invest in structures this recovery will continue to disappoint.

Losing Ground to Great Britain

It is hard to admit it, but Great Britain is doing a much better job at creating jobs than the U.S.  That has not always been the case, but it’s been true for the past decade.  What’s even worse is that we are falling further and further behind our British friends.  The United States economy is still the largest in the world, but we are no longer the preeminent job creator in the developed world.  While it is understandable that our job growth is slower than in China and parts of the developing world, there is no reason why employment in the U.S. should be falling relative to employment in Great Britain.

The latest employment figures were just released by the UK’s Office for National Statistics.  About 71.3% of adults age 16 to 64 were employed in Great Britain, in the three-month period from June to August.  That represents a one percentage point increase from the ratio in June to August 2011 (70.3%).  Moreover, this means that the employment to population ratio, the preferred measure of labor force activity by most labor economists, is almost 4 percentage points higher in Great Britain than in the United States for adults age 16-64.

The following chart shows the employment to population ratio for adults in the United States than Great Britain from 1984 to 2011.  The employment rate in the U.S. was higher than in Britain in 17 of 18 years from 1984 to 2001.  In a typical year 1.7% more adults were employed in the U.S. relative to Great Britain.  Since 2001 the Brits have been working more.  For 10 straight years the fraction of adults working in the U.S. has been lower than in Great Britain, and the gap is getting wider.

Changes over the past year have only widened the gap in employment rates between the two countries.  The employment rate increased by a full percentage point in Britain but by only half as much in the U.S.  Both rates are lower than they were prior to the recession but the U.S. employment rate is 4.1 percentage points lower while the British employment rate is only 1.6 percentage points lower than in 2005.  The employment rate of 71.3% in Great Britain and 67.4% in the United States means that 4 percent fewer adults are working in the U.S. than in Great Britain.  This translates into 8 million fewer jobs in the U.S. than if our policies led to employment rates more comparable to the U.K.

Economists and pundits in Great Britain have complained that fiscal austerity has reduced growth in their output and employment.  Whether or not these criticisms are valid, Americans would be happy to have the same record of job creation over the past four years as the British.  The decline in our employment rate in the past four years is troubling.  The employment rates illustrated above exclude individuals age 65 and above, so this is NOT due to the aging of the baby boom.[1]  It should not be too much to expect the employment rate in the U.S. to equal the rate in Britain, and that would mean eight million more jobs.  Eight million more jobs would solve a lot of problems in this country concerning the deficit, poverty and the long-term unemployed.  The government does not create jobs but tax and regulatory policy can get in the way.  Let’s hope that the presidential candidate who wins in November can work with the Congress to reverse the course we are on so that the U.S. can once again reclaim its position as the biggest job creator in the developed world.


[1] If one compares overall employment rates across countries it should be noted that there are actually a higher fraction of adults age 65 and above in Great Britain than in the U.S.

Two Million Fewer Full-time Jobs Created in this Recovery Compared to George W. Bush Recovery

Last week Nobel Prize winning economist Paul Krugman wrote “The best hypothesis about the US economy this past year and more is that it has been steadily adding jobs at a pace roughly fast enough to keep up with but not get ahead of population growth.”  Professor Krugman is correct.  Total employment in the U.S. stopped its recessionary decline in February of 2010, whether measured using the Bureau of Labor Statistics (BLS) household or establishment payroll surveys.  In the two and a half years since then the economy has steadily gained enough jobs to just keep pace with population growth and demographic changes.  This would be good news if starting from a position of full employment.  But starting from a labor market trough, after the worst recession since the Great Depression, the job market performance over the past 30 months is best described as treading water.  We can be relieved that employment did not fall even more, but what we have seen for the past 30 months is an extremely weak labor market recovery.

The labor market situation must be dismal when even one of President Obama’s strongest critics on economic policy, Jim Pethokoukis of the American Enterprise Institute, has understated the weakness of this jobs recovery.  In a recent post Pethokoukis observed that, according to BLS establishment payroll data, the “Bush jobs recovery” created 5 million private sector jobs while the “Obama jobs recovery” created 4.6 million private sector jobs.  Although true, that is only part of the story.

Pethokoukis didn’t raise two important issues.  First, in the “Bush jobs recovery” household employment grew more rapidly than payroll employment.  Economists can’t provide an exact accounting of the differences between the two employment series, but much of the difference is due to new start-ups, small businesses and the self-employed.  Small businesses and the self-employed are either underrepresented or missed entirely in payroll employment totals and births of establishments are very difficult to track.  However, it is clear that many people were starting their own businesses or taking jobs with small businesses in the “Bush jobs recovery.”

A focus on payroll employment also ignores the difference between part-time and full-time work.  In addition to the millions of jobs lost in the recession, millions more moved from full-time to part-time work.  For the labor market to fully recover, underemployed workers in part-time jobs must find full-time work.  Consider a comparison of gains in full-time jobs during the two most recent recoveries.  The “Bush jobs recovery” began in August 2003 while the “Obama jobs recovery” began in February 2010.  The comparison is over a 30 month periods because the most recent data available are from August 2012.  The “Bush jobs recovery” created about 5.59 million  full-time jobs in 30 months compared to 3.51 million in the “Obama jobs recovery.”  The 2003 -2006 recovery was not as robust as previous recoveries but still produced two million (59%) more full-time jobs in 30 months than have been created since February 2010.

Welch Consulting has developed an employment index based on the BLS household survey that accounts for differences between full-time and part-time work, as well as the changing age and gender distribution of the workforce, population changes, and seasonal effects.  The index has moved up and down since February 2010 but is imperceptibly different from 30 months ago.  No change in the Welch Index means the economy created full-time equivalent jobs at the same rate as population growth.  In contrast the Welch Index steadily increased from 2003 to 2006.

A side-by-side comparison of the two recoveries is easier if one compares percentage changes in the index relative to the employment trough (beginning of each jobs recovery).  The following chart shows that after 25 months the Welch Index gained 2.3% in the “Bush jobs recovery” compared to 1.8% in the “Obama jobs recovery.”  Just five months ago the difference in the two recoveries was modest.  In the past five months nearly all of the gains in full-time equivalent employment (relative to a growing population) have been lost.  The full-time equivalent employment to population ratio is no better than it was in February 2010, at the end of a deep and prolonged recession.  In contrast in the “Bush jobs recovery” full-time equivalent employment growth was accelerating and grew much faster than the adult population over the corresponding time period (September 2005 to February 2006).  By 30 months into the recovery the index had grown over 3%.

Recognizing that President Obama inherited an economic mess, the amount of job creation on his watch has been disappointing.  What looked promising in early spring 2012 has stalled and the hope for a “recovery summer” faded long ago.  The job creation record under President George Bush’s leadership was not only better at this stage in the recovery, it was improving.

Any President has a limited impact on the rate of job creation.  Economists may disagree about the magnitude of the effect of tax policy uncertainty on job creation, but none would advocate a system where businesses large and small are uncertain of tax rates just four months in the future.  Tax policy is, however, the responsibility of both the President and Congress.  The President has a much greater impact on the regulatory landscape through the executive branch.  Labor market regulations, such as those in the Fair Labor Standards Act, can also discourage hiring (and encourage outsourcing).  It is difficult to tell, at this time, how much the Obama Administration’s expansion of regulations has had a chilling effect on hiring.

The Obama campaign will remind us that in early 2009, for about six months, the economy was losing 700,000 to 800,000 jobs per month.  The more pressing issue, however, is which candidate has better policies to help employment grow relative to our population over the next decade.  Some policies require bipartisan cooperation in a divided Congress.  Other regulatory reforms are more directly under the control of the executive branch.  Let’s hope the Presidential debates challenge the candidates to describe regulatory reforms that will reduce the headwinds and even help foster job creation in the U.S.

Labor Market Pessimism

Through the first six months of the year the number of workers who quit their job is down 28.5% from 2007.  Workers do not generally quit a job if they believe it will be difficult to find a new job.  A low quit rate is a symptom of worker pessimism in the labor market.

A second indication of labor market pessimism is that although the number of workers laid off through the first half of 2012 is down 3.3% from 2007, the number of laid off workers filing for unemployment insurance claims is up over 18% from 2007.  Workers who are laid off appear more pessimistic about finding a new job than they were in 2007 because they are much more likely to file for unemployment insurance.  A laid off worker who is fairly certain to be re-employed within a few weeks is much less likely to go to the trouble of filing for unemployment insurance claims.

The labor market recovery will be weak as long as quit rates remain far below pre-recession levels and new unemployment insurance claims stay at their current rate of 374,000 per week (compared to 317,000 per week in 2007).  The pessimism of those who have recently lost jobs and those who are considering a job move suggest that the unemployment rate is unlikely to drop over the next few months.

Facts about Women’s Job Losses

The Romney Presidential campaign has correctly observed that men’s job losses tended to occur earlier in the 2008-2009 recession while women have lost more jobs than men since January 2009. The employment of women in the private sector fell by about 252,000 from January/February 2009 to January/February 2012 (BLS establishment survey). There are, however, substantial differences in the magnitude of job losses and gains by industry. For example, women’s employment in the health care industry increased by almost one half million and by 224,000 in temporary help agencies. In all other private sector industries women’s employment fell by 975,000 over the past three years.

Private Sector Job Losses Highest in Retail Trade

The following table presents information on selected private sector industries where women’s employment has fallen disproportionately over the past three years.

Selected Private Sector Industries with Substantial Declines in Women’s Employment January/February 2009 to January/February 2012

Industry

Employment Change

% Change in Employment

Retail Trade

-260,000

-3.51%

Telecommunications

-87,000

-23.1%

Publishing

-56,000

-14.5%

Real Estate

-48,000

-6.45%

Apparel Manufacturing

-22,000

-18.1%

Air Transportation

-16,000

-8.76%

Some of the jobs lost by women in the past three years, such as those in real estate, retail trade and air transportation are likely to return as the economy recovers. The steep percentage declines in employment in industries adversely affected by international trade and technological change are less likely to be reversed in an economic recovery.

Going Postal

The BLS data also indicates that women’s employment in the public sector declined by about 448,000 over the past three years. The following table shows that while there were small declines in state government and a modest increase in most of the federal sector, women’s employment at the U.S. Postal Service dropped sharply, by almost 35%, in just three years. Over 96% of the jobs lost at the USPS were held by women; while almost 35% of all women at the USPS lost their jobs the employment of men fell by less than 1% in the past three years.

Declines in Women’s Employment in the Public Sector

January/February 2009 to January/February 2012

Industry

Employment Change

% Change in Employment

U.S. Postal Service

-109,000

-34.9%

All Other Federal Government

+51,000

+5.46%

State Government

-12,000

-0.43%

Local Government Education

-204,000

-3.33%

Other Local Government

-174,000

-5.68%

Much of the decline in public sector employment has been at the local government level. Women’s employment in public education fell by about 204,000 over three years, but this was a smaller percentage decline than in the rest of local government.

Conclusion

Women have lost more jobs than men over the past three years despite the fact that almost 80% of health care workers are women and almost half a million health care jobs for women were added over the past three years. Women have lost over 200,000 jobs in public education, but job cuts in local government have been larger (in percentage terms) outside of education where the majority of workers are men. In the past three years women have lost jobs disproportionately in retail trade, where men’s employment increased by a quarter million, and in telecommunications, publishing and real estate. The biggest gender gap in job losses, by far, is at the U.S. Postal Service where over 96% of job losses were suffered by women.

Technical Note: Employment figures compare the average of seasonally unadjusted data in January and February 2012 to the corresponding average in January and February of 2009.

Where The Jobs Are

Job growth has been concentrated in three sectors: health care and education, professional and business services, and leisure and hospitality sectors.  In the past two years employment in these sectors have grown more than twice as fast as the rest of the economy and accounted for more than 3/4 of job growth.

Employment in the past two years increased by 3.4 million overall, and by:

  • 1.18 million jobs in Professional and Business Services
    • Over 500,000 of these jobs have been in Temporary Help Agencies.
  • 595,000 jobs in Leisure and Hospitality
    • Over 420,000 of these jobs were in Restaurants
  • 806,000 jobs in Health Care and Education
    • Home Health Care Services and Outpatient Care Centers are growing three times faster than the rest of the sector

There is no indication that these trends are about to change.  Over the past three months employment in these sectors accounted for 2/3 of the net new jobs created.  In addition, these sectors account for three out of five private sector job openings.  Job openings in leisure and hospitality have seen the largest increase – up 53% from one year ago.

Traditionally, employment in construction and durable goods manufacturing rebounds the most during economic recoveries.  During this recovery, however, construction employment has not increased in two years.  Moreover, employment in restaurants has increased more in the past two years than employment in all durable goods industries combined.

Women and the Economic Recovery

News media coverage of the 2008 recession and the subsequent recovery has focused on changes in total employment and movements in the overall unemployment.  Although the change in the total number of jobs is an important economic indicator, a focus on overall employment and unemployment can mask important changes in the composition of the workforce.  I look beyond changes in total employment to illustrate why the 2008 recession is unlike any in U.S. history.  Job losses in recessions previously were concentrated in traditionally male-dominated jobs.  The 2008 recession was different.  Women lost jobs in record numbers and women have seen small job gains during the recovery.  This stands in stark contrast to previous recessions and recoveries.

The following graph illustrates changes in the full-time equivalent employment (a part-time job is counted as ½ of a full-time job) of men.  Four years after total employment started to decline, men’s employment recovered and grew to 4 to 5% above the pre-recession peak in the 1970’s and 1980’s, but only about 1% above the pre-recession peak after the 1990 and 2000 recoveries.  The recovery over the past two years has been especially weak.

The U.S. labor force changed dramatically during the 1970s and 1980s.  The labor force participation rate of women increased from 43.3% to 57.5% between 1970 and 1990 but has leveled off since then.  The widespread reallocation of women’s human capital from household activities (not included in GDP) to paid market work had a profound impact on measured employment and GDP.  Employment and GDP increase, even though the same work is being done, when house cleaning and lawn care tasks are completed by paid service workers rather than by family members.

Cyclical employment fluctuations look very different for women.  The robust labor market recoveries of the 1970’s and 1980’s were fueled by the entry of women into the labor force.  Women’s employment grew by 15% between 1974 and 1978, and by 10% between 1981 and 1985, despite the deep recessions.

Job losses during recessions were largely confined to men until the 2008 downturn.  Women’s employment never fell by more than 1% in any recession prior to 2008.  In contrast, women’s employment fell by 5% between January 2008 and December 2009, and is still 4.6% below the pre-recession peak.

Future economic recoveries are unlikely to exhibit the robust employment gains that occurred during the 1970’s and 1980’s as millions of women moved from unpaid household work to jobs in the market sector.  This type of transformational change is unlikely to occur again.

The 2008 recession is unique because of the magnitude of employment losses sustained by women (although still smaller than for men) and the sluggish growth in women’s employment during the recovery.   In the past year both employment and labor force participation declined for women but increased for men.  Despite the labor market gains achieved by women over the past forty years, women face a somewhat new challenge – coping with substantial job losses in an economic downturn.

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