No Unemployment Recovery Until 2013

 by Derek Thompson

How will this recovery feel? TNR's Noam Scheiber says: Surprisingly breezy for job seekers. Noam and I agree on a lot of points, but I don't share his optimism. Unemployment has just crossed 10%. The last time that happened in 1982, it stayed in double digits for 9 months, and that was a historically swift recovery. The last two recessions -- in the early '90s and early '00s -- were characterized by plodding recoveries in the job market as deep-seeded structural changes to the economy prevented workers from easily rediscovering positions in their old industries. I see little reason to think that this recession, an earthquake that's left ruptures in real estate, manufacturing and finance, will be different. But not even a pessimist like me was ready for Mike Thoma's prediction.

It's not just the lag between the turning points in output and employment that leads to a pessimistic outlook for labor numbers. Once unemployment does peak, output still needs to return to its normal growth level before we see a return to full employment. The San Francisco Fed doesn't expect a return to normal growth until the middle of 2012, and this means that unemployment likely won't fully recover until somewhere in 2013.

One question this raises is, what does it mean for unemployment to fully "recover," anyway? There have been other studies -- like this -- that suggest it could almost a decade until unemployment touches five percent, where it rested before the recession hit in 2007. But other economists believe that the tremors from the Great Recession hit finance and manufacturing so hard that we might have to reassess the floor of "full employment." JP Morgan chief economist Bruce Kasman anticipates a floor closer to 7 percent, which is downright francais:

Kasman ties an increase in the full-employment rate to the permanent destruction of hundreds of thousands of jobs in industries from housing to finance.

All predictions that span a decade require a side dish of skepticism. Maybe these sectors are devastated. Maybe another industry -- green technology? -- will scoop up the remains of the Great Recession. Maybe Noam is right, after all. I say the job picture has too much gray in it for me to see much light.

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