A Closer Look

Three main reasons that this recovery isn’t generating enough jobs

There are three main reasons that this recovery isn’t generating enough jobs:

1. Overall economic growth has been subpar since this recovery started

Six months after the last recession ended, the U.S. economy began growing at an annual rate of 3.8%, adjusted for inflation. And although it has slowed since then, real growth for the most recent quarter was 2.2%. That may not sound too bad, given that the U.S. economy has averaged about 3.25% after inflation since World War II. But following a recession, there is normally a period of nine to 18 months during which growth is exceptionally high. Within six months after the 1981-82 recession ended, for example, real GDP rebounded at a rate of at least 7% for more than a year. By contrast, the current recovery peaked only half a percentage point above what qualifies as average growth. As a result, there has never been a surge of job creation to make up for the jobs lost during the last recession.

2. Corporations are not using their profits to hire additional workers

While the overall economy has failed to make up the ground lost during the recession, corporations have recovered nicely. According to a study by researchers at Northeastern University, during the first nine months of the recovery, pretax corporate profits rose by $388 billion while total wages and salaries rose by only $68 billion. Of the total, therefore, corporate profits received 85%. By contrast, in four previous recoveries since 1980, the share going to corporate profits averaged just 19%. As a result, corporate profits are now at their highest level since World War II. But U.S. corporations are just letting their cash pile up — nonfinancial companies in the S&P 500 now have more than $1 trillion on hand, compared with less than $700 billion before the recession started. And to the extent that they are using that cash, it’s to make acquisitions, repurchase stock or raise dividends, not to create lots of new jobs.

3. State and local governments continue to reduce their workforce

While U.S. companies have not made up for all the jobs lost during the recession, they have restored some of them. By contrast, the public sector — especially state and local governments — continues to cut jobs. The result is two steps forward and one step back — net job gains are even smaller than today’s modest economic growth and hesitant corporate spending would justify…

via U.S. Unemployment Rate: Why Aren’t There More Jobs? | Business | TIME.com.

Discussion

2 thoughts on “Three main reasons that this recovery isn’t generating enough jobs

  1. Reblogged this on Kmareka.com.

    Posted by Kiersten Marek | May 9, 2012, 10:44 am
  2. Reblogged this on Phil Ebersole's Blog and commented:
    Hat tip for the link to http://kmareka.com/

    Posted by philebersole | May 14, 2012, 8:25 am

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