Stanford Professor Lazear: Jobs Recovery Is a Statistical Illusion

Tuesday, 17 May 2011 12:48 PM

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Is the job market in recovery? Not if you understand the numbers, says Ed Lazear, a former economic adviser to President George W. Bush and Stanford professor.

The job market has recovered from its worst levels during the recession, but job growth isn't enough to make a difference in how Americans feel about their prospects, Lazear writes in The Wall Street Journal.

While pundits kick back and forth the top-line unemployment number — currently 9 percent — it’s important to understand that the rate of new hires is virtually flat, at about the same level as when the economy touched bottom in early 2009.

“We added jobs because hires exceeded separations, not because hiring increased,” Lazear writes. In short, we are firing fewer people than before but hiring about the same number. Good news, perhaps, but not really a jobs recovery.

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Ed Lazear
(Getty Images photo)
“The decline in layoffs is not unexpected and does not necessarily reflect labor-market health. Layoffs tend to occur early in a recession. When an economy has reached bottom and has already shed much of its labor, layoffs slow,” Lazear contends. “But that doesn't mean that the labor force is recovering.”

Instead, what we see in the occasional spikes of hires is really normal “churn” as hundreds of thousands leave the work force and businesses replace them, with no serious net increase.

Consider that 150 million Americans either have jobs or want them right now, Lazear explains. Roughly a third of the work force “turns over” in a normal year. People retire, quit, move, or get laid off — “separated” in human-resources terms.

“When the labor market creates 200,000 jobs, it is because five million are hired and 4.8 million are separated, not because there were 200,000 hires and no job losses,” Lazear writes. “When we're talking about numbers as large as five million, the net of 200,000 is small and may reflect minor, month-to-month variations in the number of hires or separations.”

The Republican-led House has voted out of committee a bill that would cut federal unemployment benefits in order to avoid a potential tax increase on businesses.

The bill, which passed the Ways and Means Committee by 20-14, would allow states to spend some of the $31 billion they are due for benefits instead to reduce taxes, pay back federal loans taken during the crisis, or to finance job training.

Employers feared they would be on the hook for up to $24 billion through 2015 to help states pay back loans taken during the depths of the crisis. While Democrats strongly protested the move, Republicans argued that raising business taxes would stunt job growth and slow the recovery.

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