NCPA - National Center for Policy Analysis

The Current "Jobless" Recovery

July 21, 2003

The U.S. economy has grown a little more than 2 percent in the past year, and most analysts believe that the nation is recovering from the 2001 recession.

Job losses, however, continue. A new report from the Federal Reserve Bank of Kansas City says that the U.S. economy is in the midst of a "jobless recovery." Like the other recent jobless recovery, following the 1990-91 recession, the current situation reflects a reliance on "just-in-time" employment practices, such as:

  • Hiring temporary workers: The growth in temp jobs was 7 percent in the 1991 recovery and 2 percent in the current recovery, but the loss of nontemporary jobs greatly offset those gains.
  • Substituting part-time workers for full-time workers in order to save on wages and benefits.
  • Increasing overtime: Companies with highly-skilled workforces tend to adjust the hours of their full-time employees during jobless recoveries; thus, a year into each jobless recovery overtime hours were at least 10 percent higher than during the recession.

These practices allow companies to reduce costs and/or increase productivity. Productivity grew at average rates following both recessions, which means that firms either produced the same amount of goods and services with fewer workers, or produced more without adding employees.

Using temporary and part-time workers does not change overall unemployment figures - it merely shifts the composition of the workforce. Increasing overtime hours, however, allows companies to fire workers or postpone hiring new ones. For example, if businesses had hired full-time workers instead of increasing overtime during the 1991 recovery, 108,000 factory jobs could have been created.

Temporary and part-time jobs offer less job stability, lower pay and fewer benefits than full-time jobs; thus, say the authors, the increase in these jobs could slow consumer spending growth and extend the joblessness of this recovery.

Source: Stacey L. Schreft and Aarti Singh, "A Closer Look at Jobless Recoveries," Economic Review, Second Quarter 2003, Federal Reserve Bank of Kansas City.

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