Economists debate whether we’re headed for a true recovery or whether the financial crisis was the beginning of a lost decade for the United States. I’ll have more on that later.
I’ll remind you though that we’ve already seen a lost decade in job creation. There are, in the U.S. today, several million fewer jobs than there were in 2001. As in all of these graphs, the shaded areas indicate the official dates of recessions.
What this picture hides, however, is a complex story of which the housing collapse is only a part. There is a long-term structure decline in manufacturing that began in 2000; a dramatic downshift in the growth of government employment; and on top of that an unprecedented collapse in construction yet to be fully explained.
Here is the private non-goods producing jobs picture. That is, private- sector jobs not including construction and manufacturing.
The jobs picture still isn’t good. However, even at the bottom of this recession there were millions more — not several million fewer — jobs than in 2001.
Moreover, there is reason to believe we have a handle on what is going on here. If we map this against household net worth, we can see that declines in the 2000 following the dot-com bust and declines in 2008 following the housing bust led consumers to draw back.
The red line indicates the net worth of U.S. household, plotted on the right axis. It flattens out and declines just before 2001 and collapses in 2007. In each case it precedes the weak job market by about a year and in each case the job market does not turn around until net worth starts rising again.
This isn’t a pretty story. However, its not the end of the story.
To preview that, let me show U.S. manufacturing jobs since 1965 ...
... and U.S. per-person construction spending (adjusted for inflation) since 1965.
Unlike the decline in wealth stories surrounding the rest of the economy, these are two epic collapses, unprecedented in the past half-century — and both began before the recession and before the decline in household net worth.
Karl Smith is an assistant professor of economics and government at the University of North Carolina School of Government and a blogger at ModeledBehavior.com.