Academic journal article Economic Commentary (Cleveland)

Looking Back at Slow Employment Growth

Academic journal article Economic Commentary (Cleveland)

Looking Back at Slow Employment Growth

Article excerpt

Jobs growth in the current expansion has been unusually sluggish despite coming on the heels of a relatively mild recession in 1990-91. Employment finally returned to its pre-recession level in April of last year, but vigorous growth did not resume until the very end of 1993. Three years into the recovery, employment has increased only 4.8 percent, compared with an average of 11.2 percent during the past three economic upturns. If jobs growth since mid-1991 had kept pace with previous patterns, an additional seven million Americans would be employed today. Such lackluster performance is difficult to explain and has led to widespread concern. Though employment gains have been heading upward again in the past few months, understanding what has held down employment growth for so long may reveal ongoing economic pressures.

One widely publicized explanation for the disappointing expansion is that corporate downsizing has led to continuing layoffs throughout many industries despite an economic outlook that is more optimistic overall. Some commentators have observed that the recession rolled through various regions of the country at different times and argue that excessive, drawn-out losses in some states held down national jobs growth. Others speculate that defense cutbacks and sagging export industries continue to shrink thousands of jobs, with indirect losses rippling through supporting industries. Alternatively, increased hiring and firing costs, due to regulation compliance or health care expenses, have made employers reluctant to add to payrolls. A final catch-all explanation is that productivity gains have simply allowed companies to do more with fewer employees. The lack of economywide, firm-level data complicates the direct identification of these conjectures.

The theories can, however, be grouped into two nonexclusive reasons for the recent slow employment growth: 1) too many jobs are being destroyed, or 2) too few jobs are being created. For example, those that cite corporate downsizing or defense cutbacks as explanations view slow growth from the angle that too many jobs are being eliminated, while proponents of the increased hiring/firing cost explanation focus on the problem that too few jobs are being added. Our approach explores the issue from both perspectives by examining job additions in expanding industries and job deletions in contracting industries. To the extent that the actions of single firms in broad industries reflect common trends, firms' behaviors will be observable in industry summaries.

Applying this method at both the state and national level allows us to use the specific situations of individual states to confirm our national results. We focus on the states with the largest shares of the country's employment: California, New York, Texas, Florida, Illinois, Pennsylvania, Ohio, Michigan, New Jersey, and Massachusetts. These 10 states provide a wide mix of industries and represent just over half of national employment, but accounted for 80 percent of all jobs lost in the most recent recession. Their combined experiences should closely reflect the aggregate U.S. trend.

We find that weak employment addition in expanding industries, rather than unusually high job deletion in contracting industries, is the major source of sluggish employment growth in this expansion. While the timing of the recession and recovery varies greatly between states, this pattern of lackluster jobs growth in expanding industries is replicated in state after state. The strength of this trend suggests a need to focus on reasons why healthy industries are adding fewer employees in this expansion. Two states point out interesting contrasts: Ohio's employment growth remains stagnant due to still-weak job additions, while Massachusetts has far exceeded its pre-recession levels of job creation. The key to a more robust recovery, either regionally or nationally, is jobs growth in expanding industries.

* JOB ADDITION AND DELETION IN THE UNITED STATES

While net employment changes are usually tracked as one indicator of the health of the economy, these changes are actually the result of two forces: job creation and destruction. …

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