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Lack of Job Creation, Not Layoffs, Driving Unemployment

Posted By James Sherk On January 12, 2010 @ 12:27 pm In Economics | Comments Disabled

New data [1] released today by the Bureau of Labor Statistics shows why a jobs recovery remains far off. This report, the Job Openings and Labor Turnover Survey (JOLTS), will receive much less press attention than last Friday’s unemployment report. However its figures hold the key to understanding why unemployment has risen so greatly.

Between the collapses of the auto industry in Detroit, the finance industry in New York, and the housing bubble nationwide, media coverage of the recession has focused on layoffs. There is a lot of truth to this. Layoffs have increased significantly since the start of the recession.

But layoffs are not the biggest part of the story of rising unemployment. Today’s figures show that less hiring is the bigger – but largely ignored – force driving up unemployment.

News coverage would lead many Americans to believe that tens of thousands workers lost their jobs in the past several months. This is not true. Millions of workers actually lost their jobs – and at the same time employers created millions more new jobs. The monthly job losses figures reported in the press are net job losses: the difference between all the jobs created and those jobs lost. Total job losses are an order of magnitude higher.

Since the recession began at the start of 2008, layoffs have increased. However, less reported in the press, new hires have fallen much more. Look at today’s JOLTS data:

In the last quarter of 2007 – the last quarter before the recession – employers laid off or discharged an average of 1.9 million workers a month. By November 2009, the most recent data available, that figure jumped to 2.1 million workers laid off. Layoffs have increased by 157,000 workers a month (with no rounding) since the start of the recession.

However, monthly new hires have dropped by over one million jobs. In the last quarter of 2007, employers hired an average of 5.2 million new workers a month. By this past November new hires fell to 4.2 million workers. The number of job openings at the end of each month has also fallen to 2.4 million – its lowest level since the government started the JOLTS survey a decade ago.

There is good news in today’s report in that both the monthly layoff and hiring figures improved slightly from October. Hires increased by 131,000 while layoffs decreased by 74,000. Those are small movements in the right direction; however they are not statistically different from October.

The broader story is that entrepreneurs and business owners have retrenched since the recession began, and JOLTS data shows they are no where close to resuming pre-recession hiring levels. This aligns with a recent NFIB survey [2] finding that small business owners do not plan to increase hiring [3] or investment in the coming months. Until that happens unemployment will remain high.

Unfortunately, the new “Jobs” bill that Congress is considering does nothing to address this problem. A recent Associated Press analysis [4] found that government highway spending had not reduced unemployment in the counties that received the funding. Spending $170 billion on more government programs will similarly fail. Government spending does not encourage entrepreneurs to start new businesses or businesses to expand operations. So it will not work. To reduce unemployment the government should remove barriers to business success to encourage entrepreneurs to resume investing and hiring. That – not more “stimulus” spending – holds the key to avoiding a jobless recovery.


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URL to article: http://blog.heritage.org/2010/01/12/lack-of-job-creation-not-layoffs-driving-unemployment/

URLs in this post:

[1] data: http://www.bls.gov/news.release/pdf/jolts.pdf

[2] a recent NFIB survey: http://www.nfib.com/Portals/0/PDF/sbet/SBET200912.pdf

[3] do not plan to increase hiring: http://www.heritage.org/Research/Economy/wm2748.cfm

[4] Associated Press analysis: http://news.yahoo.com/s/ap/20100111/ap_on_bi_ge/us_stimulus_unemployment

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