The Bureau of Labor Statistics released the employment report
for September, and the report was frightening: 263,000 jobs lost,
well exceeding expectations. The unemployment rate climbed to 9.8
percent even as the labor force shrank. The continued weakness in
the labor market illustrates how flawed the stimulus package
The September Report
Every aspect of the labor market in September was negative. The
labor force participation rate fell to 65.2 percent, the lowest
point of this recession and the lowest rate in 25 years. The
unemployment rate increased by only 0.1 to 9.8 percent, but the
unemployment rate would have been higher had 571,000 not left the
labor force. The male unemployment rate reached 10.3 percent, the
highest level since the Great Depression.
The labor market for teenagers reached an all-time low. Their
unemployment rate is now 25.9 percent, the highest recorded level.
Their participation in the labor market reached an all time low of
36.9. This means that fewer teenagers than ever before are trying
to work, and those teens are less likely to be employed than during
the Great Depression.
The weekly hours of work ticked down by 0.1 to 33.0 hours per
week. Hourly wages grew by only 1 cent, so average weekly wages
fell, as the drop in hours more than offset the wage growth of one
Job losses were widespread, with every sector losing jobs.
Construction (-64,000) continued to be hard hit. Heavy construction
(-11,900) has lost 5 percent of total jobs since May of this year.
This indicates that the intended stimulus of "shovel-ready"
construction jobs has not been effective.
Manufacturing (-51,000) continued to lose jobs as the small
boost in automotive construction ended after the "cash for
clunkers" program. The job losses were widespread through the
industry, but they were concentrated in the durable goods sector
The service sector (-147,000) had a rough month, as all its
components except health (+19,200) were negative. Retail trade
(-39,000) was the worst. The financial industry (-10,000) continued
downsizing, but jobs in real estate increased (+5,000) as the
private housing market industry continued to recover.
Few Sectors Will Create Jobs
The unemployment rate will probably remain high for the
foreseeable future. Looking forward, few sectors of the economy
seem close to creating jobs. The construction industry has shed 1.5
million jobs since December 2007, and the manufacturing sector has
lost over 2 million jobs. Neither of these sectors is likely to add
jobs in the near future.
The collapse of the housing bubble will depress residential
construction employment for years to come. Nonresidential
construction employment will not increase until businesses'
investment spending returns to normal levels. Most of the lost
manufacturing jobs have permanently disappeared because computers
and technological innovations have automated much of that work.
Declining industries are not new. The manufacturing sector has
steadily declined over the past generation, while agriculture has
shed tens of millions of jobs over the past century. Declining
manufacturing and construction employment is not a disturbing
economic signal on its own. In normal economic times, however,
other sectors of the economy expand and workers shift to sectors
that value their labor more highly. The serious problem in this
recession is that other economic sectors are not expanding and
Every other sector of the economy besides health care and
government has also shed jobs. This is because businesses are
retrenching and holding back on investment. Business equipment and
software investment fell by 20 percent between the last quarter of
2007 and the second quarter of 2009. The political agenda of higher
business taxes, higher energy costs, and widespread unionization in
Washington also encourages companies to wait and see what
Washington will do before investing money in risky long-term
projects. As companies wait to invest, however, job creation
New business startups-a traditional source of job growth-have
also slowed. Venture capital investment fell 44 percent between the
first half of 2008 and 2009. Unsurprisingly, business hiring at new
startups also fell by 100,000 jobs a quarter since the start of the
recession. Entrepreneurs are holding back and
deciding-given the political and economic risks today-not to risk
their capital on starting a new business.
The stimulus bill does nothing to address this problem. Massive
government deficit spending on traditional liberal priorities does
not encourage private sector businesses to resume investing; $800
billion in federal debt spending does not encourage an entrepreneur
to take the risk of starting a new business that will hire more
workers. It does not incentivize a venture capital investor to risk
his money in a new startup. The stimulus bill has wasted vast
amounts of money without creating net new jobs.
Even the much-hyped cash-for-clunkers program did little to save
jobs. The program caused consumers who were already planning on
buying a car to move their purchase forward to take advantage of
the subsidy. However, now that the program has ended, vehicle sales
have dropped below their previous levels. GM sales have fallen 47
percent, Chrysler 44 percent, Ford 9 percent, and Toyota 16
percent. With fewer sales, automotive manufacturing
jobs fell by 4,000 in September-a figure that does not include the
13,000 jobs that will disappear when Saturn goes bankrupt.
There are few job creation bright spots in this jobs report.
Americans should brace for a jobless recovery for months and
perhaps years to come.
Where Is the Bottom?
This is a troubling report, but hopefully it is only a one-month
aberration. Job losses in the labor market have eased in the past
months, and job losses are not nearly as severe as they were
earlier this year. If next month's job report is as bad, that
indicates that a labor market bottom is still several months
At some point, companies will cease their layoffs and the labor
market will reach bottom. Unfortunately, the federal government is
taking steps to discourage hiring. Many pieces of legislation-such
as cap-and-trade and health care mandates-will impose new costs on
employers, which will slow the labor market recovery.
Congress should reassure the business community by making
permanent the Bush tax cuts, which lower startup costs for
businesses. Congress should also not impose new mandates on
businesses that will raise labor costs during a steep economic
downturn. Already, the teenage labor market has reached a new low
due in part to the minimum wage increase last July. Congress should
not enact similarly harmful legislation.
Rea S. Hederman, Jr.,
is Assistant Director of and Senior Policy Analyst in, and James Sherk is Bradley
Fellow in Labor Policy in, the Center for Data Analysis at The