Lessons Learned from the Economic Crisis: Job Creation & Economic Recovery
Anderson, Bernard E., National Urban League. The State of Black America
In late 2009, the American economy appeared to begin recovery from the worst economic crisis since the Great Depression. The National Bureau of Economic Research marked December 20O7 as the beginning of the recession and over the next 22 months, the economy lost more than eight million jobs. The employment contraction spread widely across the economy with almost all industries reporting job losses at some time over the 23 month period. Health care, the only industry reporting job gains throughout the recession, gained nearly 600,000 jobs since 200?. The rate of unemployment was 10.0 , percent in December 2009 and the number of unemployed was 15.3 million; 38.6 percent had been jobless for more than six months.
Reflecting the long, persistent racial disparity in the labor market, the black unemployment rate was 15.6 percent, or 1.6 times that among white workers. Black workers were 13.9 percent of the labor force, 12.9 percent of the employed, but almost twice that ratio- 22.1 percent- of the unemployed. Black youth ages 16-19 were unemployed at 45.7 percent, or 1.8 times that of similarly aged white youth.
The depth and breadth of job losses during the recession was the result of the dual onslaught of economic contraction and the collapse of the financial system. Starting in fall 20O8, banks faced a severe liquidity crisis which forced them to suspend credit for consumers and for small and large businesses. More than 100 banks failed while bank regulatory authorities forced others to strengthen their capital and tighten underwriting standards. Even credit-worthy borrowers found it difficult to obtain credit for inventory and cash flow management. The financial crisis generated reduced consumer spending and business investment, spurring an across the board surge in layoffs.
Getting America Back to Work
In February 2009, the Obama administration proposed, and Congress enacted, the American Recovery and Reinvestment Act of 2009. The $787 billion stimulus program included funding for extended unemployment compensation, middle class tax cuts to bolster consumer demand, tax incentives for business investment, aid to state and local governments, funding for infrastructure, and job training for occupations in the health care, energy and environmental sectors. The U.S. Department of Labor received $700 million to support job training initiatives in those industries. Though the stimulus program has had its detractors, the Congressional Budget Office estimates that the stimulus program might have been responsible for saving or creating about 1.2 million jobs.
The Path to Recovery
Despite many efforts to spur economic recovery, the labor market remains weak and many economists question the prospects for rapid recovery in the immediate months ahead. In the past, a short, deep decline in employment was followed by rapid job growth during the recovery (a V-shaped recovery) while a slow, shallow decline in jobs was followed by a long, jobless recovery (a U-shaped recovery). In a jobless recovery, the unemployment rate remains high long after recovery begins. As Figure 1 shows, during the 8 month 1990-91 recession, employment declined by nearly 2.0 percent and the unemployment rate climbed to 6.8 percent by the end of the recession. But, joblessness kept rising during the 1992 recovery and reached a peak of 7.8 percent in June 1992, 15 months after the recession ended. Similarly, during the eight months of the 2OO1 recession, the unemployment rate rose to 5.5 percent, but more than a year and a half after that, it topped out at 6.3 percent.
The unemployment rate remains high during a weak recovery because with a glimmer of hope that jobs might be available, workers who dropped out of the labor force will return. The increase in the size of the labor force is likely to exceed the rate of job creation, thereby contributing to a continuing high rate of unemployment.
There is reason to believe job creation will be modest during the extant recovery and that unemployment might remain high for an extended length of time. …