Are We Entering a Jobless Recovery?

David Francis

Early signs in the new year point to an improvement in the U.S. economy. The Federal Reserve recently reported that the economy "expanded at a modest to moderate pace" from November to December of last year. At the same time, stocks, which were flat in 2011, have made quick gains in the first few weeks of 2012.

But there is a downside to the Fed's favorable report and the good news on Wall Street. While the economy is growing, few new jobs are being created. The unemployment rate fell from 9.4 percent in December 2010 to 8.5 percent in December 2011. But without more dramatic job growth, low-skilled workers and the long-term unemployed will continue to have a hard time finding a job.

[See 6 Tips for Landing a Job in 2012.]

Economists now fear that the United States is entering what is known as a "jobless recovery," an economic recovery in which few new jobs are created. If economic expansion continues without adding a significant number of jobs, many unemployed workers will simply be left behind with few job prospects.

Some 23 million Americans are unemployed, and an estimated 2.5 million have stopped looking for work altogether. According to Thomas Donahue, president of the U.S. Chamber of Commerce, the current state of the economy cannot begin to solve the American unemployment problem. "As we begin 2012, we can say that the state of American business is improving--but it is doing so weakly, slowly, and insufficiently to put our nation back to work," Donahue says.

Disappearing jobs. Lee Ohanian, a professor of economics at the University of California--Los Angeles, says for many Americans, the problem with finding work is that the jobs they once had are not coming back.

According to Ohanian, for decades after World War II, many working-class Americans worked in manufacturing industries, like auto and steel. In the last 20 years, however, many of these jobs have been shipped overseas or eliminated by advances in technology. The recession of the last decade wiped these jobs out altogether.

[See Breaking Down the Income Gap Into Real Terms.]

"The guy who was making $35 an hour at General Motors doesn't want to work for $12 an hour," Ohanian says. "When people who are low-skilled get laid off and their market value falls to $11 or $12 per hour, they're bumping up against minimum wage."

Unfortunately for these workers, Ohanian adds, lawmakers refuse to acknowledge that these jobs aren't coming back or that more dramatic steps need to be taken to address the problem. "It has become politically unacceptable to say that because it paints a picture of failure," he says. "At some level, identifying the problem and being upfront about it is the first step. Until we do that, we can't deal with the underlying problems."

Education is key. The only way to solve the problem of long-term unemployment for workers with outdated skills is for them to learn new ones. Ohanian says the government should adjust unemployment insurance to include retraining in growth industries.

Education is also important. According to the U.S. Census, less than 30 percent of Americans have college degrees. Those who do complete college make an average of $51,206 per year, compared with an annual salary of $27,915 for those who don't.

[See Are Employers to Blame for the Skills Gap?]

But as college has become more important, it has also become more expensive. In 2011, tuition at the average U.S. private college was $28,500 per year. According to the Congressional Budget Office, the average cost of a year of college in 1970 was $690.

There are less expensive options. Community colleges offer courses that focus on helping people learn new skills in new industries. Many universities also offer online classes that are much less expensive than traditional studies.

"This large mass of the long-term unemployed and low-skilled workers is not going to go away," Ohanian says. "These people are not going to become reengaged in the workforce unless they retrain."

[See 6 Ways the World of Work is Changing.]

Room for growth. In past downturns when many jobs were lost, many people looked to local and state governments to provide employment. In this recession, that hasn't been the case.

"Many workers would look to government employment as a source for jobs, but with so many states under fiscal pressure, those jobs are gone," Ohanian says.

But there are areas where employment prospects are improving. Jobs in healthcare, such as nurses and rehabilitation assistants, are plentiful. The energy sector is also expanding. The demand for green energy technologies is growing, as is the natural gas exploration industry. Information technology professionals are also in high demand.

Gaining the skills to compete for these jobs is the key to leveling the playing field between those without college degree and those with a college education, Ohanian says. If laid-off workers do not commit to acquiring new skills, Ohanian warns that this economic recovery would lead to a "sharp demarcation in American society."