Nine point four per cent. That is the figure giving Americans the jitters. It is what the unemployment rate rose to last month, edging closer to the grimmest scenario in the banks’ stress tests. The most obvious reason for this is that jobs are still being cut. But there is another reason too: the US labour force is expanding. People considered to have left the labour force – because they had not looked for a job in the past four weeks – are again searching for work, perhaps out of economic desperation. As a result, even if the rate of job losses slows (or reverses), it is possible the unemployment rate could continue to rise for a while.
The US labour force is in continual churn. Last year, on average, 7 per cent of the population aged 16 years or over changed their employment status each month. Patterns also vary between downturns. In the 1970s and 1980s’ slumps, for example, firings drove up unemployment as much as any slowdown in new hirings. Both also quickly returned to pre-recession norms after the slowdown passed. In recent downturns, by contrast, hiring freezes were more important than sackings.
This recession initially behaved much the same. When unemployment first began to rise in early 2007, it was due to less hiring rather than more firing; flows of workers into employment continued to decline throughout last year. But as firing accelerated in 2008, more unemployed workers chose to leave the labour force. As these workers now return to the labour force they will struggle to find work; the result could be a so-called jobless recovery, a term coined after the last recession. Furthermore, as many employees have been forced to work part-time, companies can tap their existing workforce rather than hire fresh recruits when a recovery comes. Meanwhile, in areas such as finance, some jobs will simply never be coming back. The numbers will get scarier yet.
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