View From Down Under

The Labor department released its December employment situation update yesterday.   Non farm payroll down slightly (85,000).  Unemployment rate remained steady, as a result of people dropping out of the job market.

In the last two US recessions, unemployment has lagged economic recovery by much more than previous recessions.  From an article by Mark Thoma in November comes this interesting graph:

The delay in unemployment reduction led both the last two recoveries to be labelled jobless recoveries.  I believe this one will be as well.

Improvement in technology has changed the way much work is performed.  However, most companies do not lay off employees when they improve their systems and processes.  Instead, they tend to either redeploy them or fail to completely capture the benefit of the upgrades.  During a recession, companies are forced to reduce staff.  Often they find that there is the ability to stretch productivity during this time, and as the economy recovers they manage to keep pace with the recovery with a smaller staff.  This process has accelerated since the 1981-82 recession, and I believe is one of the key reasons for the jobless recoveries (although there are other reasons also).

The view from down under is not as pessimistic as many economists (including many much more qualified and eloquent than I), but the prospects for major reductions in unemployment before the mid term elections next November looks grim.