About the author: Julia Pollack Chief Economist at ZipRecruiter.
There is a shaky, but emotional, debate raging about whether the United States is in a recession. According to most relevant bond market indicators, investors are betting on deflation. But there is one group that strongly rejects the idea: labor economists.
The job market in the first seven months of 2022 does not look like the job market in most recessions. Friday Jobs Report It was unmistakable. Far from losing steam, the labor market recovery has been running at full throttle.
Since the start of every post-war recession – and often in the preceding months – the unemployment rate has been Always Has risen. By contrast, the unemployment rate over the past seven months has been He fell from 4.0% to 3.5%, to return to its lowest level in 50 years. The economy has added more 3.3 million jobsReturns the complete annual total in records approximately each year.
Of course, the job market can flip on a dime. But the main indicators of how recessions usually affect the labor market show few signs of weakness.
First, recessions always come with job losses. It is basically descriptive. Employment and GDP fall together, with a 2% decrease in GDP usually accompanied by a 1% increase in unemployment (a relationship known as Okun’s Law). For all of our luxury insurance products and credit instruments, recent downturns are “as severe when measured in employment losses as those before them,” Writes Stanford University economist Robert Hall. We see the opposite.
Second, forget the movie’s metaphor of office workers walking out of buildings carrying cardboard boxes full of potted plants and their framed photos. Layoffs tend to rise only slightly in recessions. University of Chicago economist Robert Shemer explain: “Unemployment rates are rising almost entirely because jobs are difficult to find. Recessions involve a small increase in the flow of workers from jobs.” We’re seeing a slight uptick in initial jobless claims, but no rollover of continuing claims and layoffs. Remains near record lows.
Third, job-finding declines for the unemployed and periods of unemployment swell because job opportunities tend to fall early in recessions and employment follows. Number of vacancies Drops From 4.8 million to 3 million in the dotcom crisis; 4.5 million to 2.5 million in the Great Depression; And from 7 million to 4.7 million in the Covid recession. The Employment rate So far in 2022 it was 12% higher than it was in 2019. The drop in job openings in June – the largest on record, outside the start of the Covid recession – may signal a slowdown to come, but there are still 53% more job openings than It was before the pandemic.
Fourth, the decline in employment and employment opportunities tends to be so Widespread During recessions, affecting nearly every sector. By contrast, recent reported cases of hiring freezes and layoffs have mostly been limited to sectors such as technology, real estate and e-commerce that have exploded during the pandemic and are now returning to more normal patterns. And it was so small that it was not visible in the aggregated economic data. Recession-sensitive industries — restaurants, hotels, and airlines, for example — continue to expand rapidly.
Fifth, the rise in underemployment during recessions. Number of people who wanted to work full time but were forced to settle into part time roles Has risen From 4.6 million to 9 million in the Great Recession. In July, that number rose by 303,000, but it remained well ahead of pre-Covid levels.
Sixth, wage growth slows down during recessions. It fell from 5.3% in March 2001 to 3.3% in June 2004, for example, and from 4.1% in December 2007 to a cycle low of 1.6% in May 2010, according to data from Atlanta federal wage growth tracker. Now, this source and the Ministry of Labor Labor Cost Index They show that annual nominal wage growth is ever higher and accelerating.
Finally, workforce participation is typical the fall During recessions and for several years after that, it doesn’t pay much to enter the job market. Labor force participation has been flat or declining in recent jobs reports, which seems nearly impossible given the rapid growth in payrolls, but this is one indicator to watch.
Average Recession Continues 17 monthsHowever, the labor market may take longer to recover. The most miserable neighborhoods expertise Continuous decline in employment and population. Men affected by layoffs lose Average 1.4 years of earnings if the recession is mild, but 2.8 years of earnings if the recession is severe. and unlucky college graduates who started their careers during the recession earn less For 10 to 15 years of those who graduate during a period of economic expansions.
By contrast, labor market recoveries like the one we’re seeing tend to set off virtuous cycles. Job gains lead to increased wealth and robust consumer spending, which encourages employers to hire more workers. However, they also increase pressures on employers, making it difficult for companies to retain and hire workers. But even those struggles can have a positive side: companies get better at finding and attracting the best candidates.
It is easy to imagine that the labor market will transition from a hot weather in 2021 to a very hot labor market in the first half of 2022, and reach a more sustainable temperature during the second half. It’s hard to imagine the labor market entering a deep stalemate any time soon.
The question, of course, is how much cold water the Fed will have to dump.
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