US Job Market / A slow recovery reflecting slow growth in demand says CBO

The deep recession that began in December 2007, when the economy began to contract, and ended in June 2009, when the economy began to expand again, has had a lasting effect on the labor market. More than four and a half years after the end of the recession, employment has risen sluggishly—much more slowly than it grew, on average, during the four previous recoveries that lasted more than one year. At the same time, the unemployment rate has fallen only partway back to its prerecession level (as shown in yesterday’s blog post), and a significant part of that improvement is attributable to a decline in labor force participation that has occurred as an unusually large number of people have stopped looking for work (see the figure below). Moreover, the rate of long-term unemployment—the percentage of the labor force that has been out of work for more than 26 consecutive weeks—remains extraordinarily high.

In assessing the slow recovery of the labor market, CBO reached the following conclusions:

Of the roughly 2 percentage-point net increase in the unemployment rate between the end of 2007 and the end of 2013, the portions that can be attributed to different factors are shown in the table below.

Percentage Points

• About 1 Cyclical weakness in demand for goods and services
• About 1 Structural factors—specifically:
• About ½ Stigma and erosion of skills from long-term unemployment
• About ½ Decrease in efficiency of matching workers and jobs, at least partly from mismatches in skills and locations

Of the roughly 3 percentage-point net decline in the labor force participation rate between the end of 2007 and the end of 2013, the portions that can be attributed to different factors are shown in the table below.

Percentage Points

• About 1 ½ Long-term trends (primarily aging of the population)
• About 1 Cyclical weakness in job prospects and wages
• About ½ Discouraged workers who have dropped out of the labor force permanently

Employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its prerecession level and if the participation rate had risen to the level it would have attained without the current cyclical weakness. Those factors account roughly equally for the shortfall.

via U.S. Labor Market Has Recovered Slowly and Only Partially Since the End of the Recession – CBO.