A jobless recovery or the new normal?

As those who have been following this blog know, one of the items I track is the unemployment numbers -- specifically the involuntary underemployed. The reason I do so is that this indicator of the labor force is generally under reported. But it is an important measure - especially in the I-Cubed Economy with its very liquid and flexible labor force. Recently, Mary Daly, Bart Hobijn and Joyce Kwok of the Federal Reserve Bank of San Francisco (FRBSF) looked more closely at this indicator and others to try to forecast the direction of unemployment (see Jobless Recovery Redux?). Their findings are not optimistic:

Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market. Specifically, we suggest that the relatively low level of temporary layoffs and high level of involuntary part-time workers make a jobless recovery similar to the one experienced in 1992 a plausible scenario.

I agree that the data resembles 1992. But I would also argue that the same pattern has existed in every recession since. And it actually pre-dates the 1992 recession. The recession of the early 1980's was the first recession of the I-Cubed Economy where workers were not placed on temporary layoff but permanently fired. Companies and workers were "downsized" rather than laid-off. Involuntary part-time work was the response of people downsized.

This was part of the switch away from the industrial economy. In the industrial economy, temporary lay-offs were the way of buffering the labor force from cyclical downturns. Workers were kept around for the next up turn -- with either union-based or government-based unemployment payments to maintain family income until the recall.

In the I-Cubed Economy, that process has disappeared. Workers have to find new jobs -- often in new industries. Cyclical downturns now lead to structural changes.

Unfortunately, after 20 years we apparently still have not learned that lesson. And our public policies -- such as unemployment insurance and worker training -- have suffered.

So, I'm not sure the FRBSF's analysis points to a slow or fast turn around in the labor market. It does point out that the labor market is different than in the past.