2011 Job Creation: Not Worth Crowing About

by James Sherk

Presidents usually express optimism during their State of the Union addresses, so it’s no surprise that President Obama touted 22 consecutive months of net job creation and boasted that “last year, they [private-sector businesses] created the most jobs since 2005.” Unfortunately, full context makes the economy look less spectacular. In a good economy, 2011’s job creation figures would be fantastic news. In today’s economy, coming out of a steep recession, they are less so.

Normally, job-creation surges following a sharp downturn as entrepreneurs and investors find new work for the unemployed. Unemployment rose to almost 11 percent after the 1981–82 recession. Subsequently, hiring boomed: In the last three quarters of 1984, net hiring amounted to 16 percent of the available labor supply (those unemployed or not in the labor force but who want a job), and unemployment rapidly returned to pre-recession levels.

In 2005, employers had fewer potential workers to hire, so net job creation was less rapid. But in the last three quarters of 2005, net hiring still amounted to 17 percent of available labor supply.

In the last three quarters of 2011, net job creation represented just 5 percent of the 20 million Americans available to work. Employers are creating far fewer jobs than economists would expect, given the number of potential employees.

That has made this the weakest recovery of the post-war era. In all the other recessions of the past two generations, employment has recovered within four years. Not this time. Six million fewer workers have jobs today than when the recession began four years ago. Most of those net job losses (5.7 million) came in the private sector.

The labor market is doing better than it was a year ago. It’s understandable that the president would tout that fact. But even if the economy continues to add jobs at the same pace it did in December, unemployment will return to normal levels by … late 2016. The economy needs much faster growth to bring unemployment down quickly. Sadly, we cannot yet break out the champagne.

— James Sherk is a senior policy analyst in labor economics at the Heritage Foundation.

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