We’re coming out of the worst economic shock in recent history, yet the rate of US job destruction isn’t unusually high, once you dig into the numbers.
Headline-making net jobs lost surprisingly haven’t been due to unusually high gross job destruction. They are actually more the result of falling gross job creation.
In fact, gross job destruction has been in a down trend for quite some time, shown below. Unfortunately, so has job creation, and the recent economic downturn blew open the spread between these two data points.
Does this mean that this economic downturn isn’t clearing out inefficient jobs as it should be doing?
Employment, Interest, and Money: The fact is, job creation and job destruction take place during booms at rates that are not dramatically different from the rates during recessions. It’s just the difference between the two that changes. In a typical boom quarter, about 7 million jobs are destroyed, and about 8 million are created. In a typical recession quarter, about 8 million are destroyed and about 7 million are created. There just isn’t much support for the idea that recessions give us a special ability to reallocate resources more intensely than we do during a boom or a period of normal growth.
It’s peculiar that job creation has been falling as a % of total employment since 1997, but we’d be cautious to think that this represents a long-term economic problem. Perhaps it’s due to people staying in their jobs longer, thus reducing new job creation as a % of total employment.
Whatever the exact cause, the data above suggests that the solution to unemployment today isn’t to subsidise people in their current jobs, but rather to spur the creation of new jobs.