Table Of Contents
The Great Recession officially lasted from December 2007 to June 2009 and was the longest and deepest economic downturn since World War II. The term ‘Great Depression’ refers to both the US recession and the ensuing global recession in 2009.
The Great Recession was precipitated in the United States and quickly spread to other countries. Interestingly, the Great Recession was avoidable, according to a report by the Financial Crisis Inquiry Commission in 2011. The economic slump started with the collapse of the US’s 8-trillion dollar housing bubble, and huge amounts of derivatives and MBS’s (Mortgage-Backed Securities) lost significant value.
The Great Recession resulted in a loss of wealth, which in turn led to immediate cutbacks in consumer spending. This combination of loss of consumption and chaos in the financial markets very quickly led to a collapse in business investment. Then, as predicted, the drying up of consumer spending and business investment led to massive job loss.
In the years 2008 and 2009, a whopping 8.4 million jobs were lost from the US labor market – equivalent to 6.1% of all payroll employment. This was, by far, the most significant employment contraction of any recession since the Great Depression. To compare, the 1981 deep recession had a job loss of 3.1%, which is almost half as severe as the 2007-2009 Great Recession.
In 2009 the economy stopped contracting, but growth since that time has not even come close to creating the jobs needed just to keep up with normal population growth, let alone provide jobs for the backlog of workers who lost employment during the collapse. In the early 1900s during post-World War II recessions, it took approximately 10-months for the economy to salvage the jobs lost during the recession. However, it took almost two years after the early 1990s recession and more than three-and-a-half years after the early 2000s recession.
It appears that recovery from the Great Recession is carrying on with the slow pattern of the previous two recoveries, however, the timeline is going to extend even longer. Sixteen months after the official end of the recession (in October 2010) there were still 5.4% fewer jobs than before the beginning of the recession. This result has been a combination of severe job losses and a stagnant economy.
The Great Recession has resulted in reduced family incomes and a rise in poverty, with both children and adults losing their health insurance. In addition, the bursting housing bubble coupled with the drop in the stock market has meant a dramatic drop in family wealth. All the above simply highlights the huge impact the Great Recession has had on working families and the labor market.
1. Job Loss
As mentioned above, job loss during the Great Recession was a lot more severe than in any recession since WWII when the labor market lost 6.1% of all payroll employment. Compare this figure with a job loss of 3.1% during the 1981 deep recession and you can see the job loss was only half as severe.
Comparing the 1981 recession with the Great Recession, the peak unemployment rate was a little higher in the 1981 recession. This means that unemployment during the Great Recession was the largest increase experienced in any recession in 70 years.
Figures clearly show that ethnic and racial minority workers have much higher unemployment than white non-Hispanic workers. Regardless of whether the economy is in a recession or an expansion, the black unemployment rate is typically about twice as high as the white unemployment rate. Therefore, during recessions, it’s black workers who are subjected to bigger increases in unemployment.
2. Underemployment and Unemployment
It’s not possible to use one number to explain the weaknesses or strengths of something as unpredictable and complicated as the US labor market, which is why we always look at the unemployment rate in combination with other measures of labor market health.
As you can see, it’s not only the unemployment rate shown on the above chart but also a more comprehensive measure of labor market slack. While it does show the officially unemployed, it also shows ‘marginally attached’ workers and ‘involuntary part-time’ workers –
Marginally attached workers are those who want a job, are ready and willing to work, but have ceased seeking work because they’ve become so discouraged. These people are not counted as officially unemployed. Involuntary part-time workers are those who have had to settle for part-time work but would love to work full-time.
Around 1 out of every six workers in the United States, which is equivalent to around 27 million workers, are either underemployed or unemployed. It should be noted that this is a conservative measure of the underemployed because workers who have been forced to accept jobs below their experience or skill levels are not included in these figures.
All ‘duration of unemployment’ records has been broken by the Great Recession. As you can see in the chart below, these are the people who have been unemployed for six months or more. For all of 2010, this share has been more than 40%, which is way higher than its previous peak of 26% in the summer of 1983.
It appears that, in this labor market, once a worker has been laid off from their position it’s highly unlikely they’ll find another job anytime soon.
3. Job Shortage
There’s a significant margin between job seekers and job openings – this ratio was 5 to 1 in September of 2010. Note that this is not the number of applicants for each job opening, which is actually much higher because one unemployed job seeker will apply for many jobs. What this 5 to 1 ratio actually means is that there are no jobs for four out of every five unemployed people. Interestingly, this is actually an improvement since late 2009, but it’s much higher than the worst month of the previous recession and more than three times higher than in 2007, before the start of the Great Recession.
Payroll Employment During the 2000s
The labor market in the US had 7.8 million fewer jobs as of September 2010 than it had in December 2007 when the recession first started. However, it should be noted that, because we have an ever-increasing population, 100,000 jobs must be added to the labor market just to ensure a stable unemployment rate. Between December 2007 and September 2010, 3.4 million jobs needed to be added to the labor market to maintain pace with population growth, but the result was a jobs hole of more than 11 million jobs in that timeframe. The labor market would need to add approximately 300,000 jobs each and every month for 5-years to fill in that hole.
As you can see, these figures show we have a massive jobs deficit, and one wonders if it’s also true that the Great Recession created extreme structural changes that are being masked by the aggregate numbers. Perhaps the evidence shows that a certain portion of today’s unemployment has been caused by firms having job vacancies but being unable to find appropriate workers.
Figures showing the number of unemployed workers and the number of job vacancies by sector can be seen in this chart.
If unemployment today is mainly structural, one would assume there are some sectors with many more unemployed workers than there are job openings and other sectors with many more job openings than there are unemployed workers.
So, if structural unemployment were in fact a major part of overall employment, surely we would find labor shortages in some areas where firms with job vacancies couldn’t find suitable workers. But this situation is not occurring in any major sectors. In every sector, job openings are dramatically outnumbered by unemployed workers.
This means that the main problem created by the Great Recession is not an economy lacking appropriate workers – it’s an economy lacking jobs, right across the board.
4. Reduced Income, Increasing Poverty
For most families, the foundation of their income is the labor market. Weak labor markets affect family incomes, through both job loss and wage and hours cuts for employees who do have work.
In this chart, you can see the overall median household income and the income for working-age households.
Between the years 2007 and 2009 we saw a decline in income in the typical working-age household of $2,700. In addition, because this recession very closely followed one of the worst business cycles on record (in terms of job creation), a typical working-age household earned around $5,000 less in the year 2009 than it did in 2000. And because ethnic and racial minorities are disproportionately affected by job loss during a recession, their income drops even more than whites. We especially saw African Americans experience huge income declines during the Great Recession.
5. The Great Recession And Rise In Poverty
One out of every seven people were living in poverty in 2009, while poverty also affected one out of every five children under eighteen. Our youngest have been hit the hardest, with almost one out of every four children under six years of age living in poverty.
Regardless of whether the economy is in a recession or in an expansion, ethnic and racial minority families are much more likely to be living in poverty. However, during the Great Recession, we saw a huge increase in Hispanics living in poverty. Around one in four African Americans and Hispanics are living in poverty in the US.
6. Additional Fallout
Household wealth took a major hit during the Great Recession, what with the bursting of the housing bubble, the declining stock market, and a weak labor market. Between the years 2004 and 2007, the median net worth of whites declined by about a third, reducing from approximately $150,000 to around $100,000. The median wealth of Black people, which is typically quite a lot lower than that of whites, took a major hit, reducing by more than three-quarters from approximately $10,000 to about $2,000. Because the majority of Americans, especially those under the age of 65, are dependent on workplace health insurance, it follows then that there was a dramatic reduction in employer-sponsored health insurance during the Great Recession.
The number of Americans under the age of 65 who were dependent upon their employment-based health insurance fell in 2007 from 62.9% to 58.9% in 2009. A portion of this decline was balanced out by an increase in public insurance coverage, but either way, there were 50.7 million people without any health insurance whatsoever. 50.7% of these were children.
What The Future Holds
The main characteristic of the last two recessions has been the incredibly slow recovery of the labor market. If job growth is anything like it was in the last two recoveries, it’s highly likely that the greater scale of job loss during the Great Recession could mean we’ll be well into the next decade before making up all the lost jobs.
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