It Will Be Years Before Lost Jobs Return -- and Many Never Will

Wsj.com | Oct 5, 2009  By SUDEEP REDDY

The
U.S. has shed 7.2 million jobs since the recession began in December
2007. How long will it take for the economy to replace them? And where
will the jobs come from?

The questions haunt people from the unemployed in San Francisco to
officials in Washington. Glenn Atias lost his job as a $100,000-a-year
statistician at a market-research firm in the Bay Area last summer when
the work was outsourced to India. At 46 years old, he pores over job
ads and online postings daily. "I'm stuck watching hundreds of
thousands of people in my position grow in ranks each and every month,"
said Mr. Atias, who lives in Salton City, Calif., in a house worth less
than the mortgage.

When unemployment benefits run out, he said, "I literally don't know how I'll pay my mortgage, how I'll pay my health care."

Economists
say that when demand picks up -- as it is starting to do -- jobs
eventually will follow. History shows that has always been true. But
guessing which jobs will be created over the long run is often
fruitless. Many of tomorrow's jobs don't exist today.

In 2003, Treasury Department chief economist Alan Krueger, then at
Princeton, calculated that a quarter of U.S. workers at the time were
in jobs the Census Bureau didn't even list as occupations in 1967.

Determining which fields will become popular is next to impossible.
"It is very difficult, without a crystal ball, to know where the
economy will be in 10 years," said Susan Wolff, chief academic officer
of Columbia Gorge Community College in The Dalles, Ore. "Sometimes we
think we're doing a pretty good job if we can guess where the economy
is going to be in five years."

The U.S. hasn't seen a contraction as deep as this one since before
World War II, and employers have cut workers faster than history
suggested they would even in a recession as deep as this one.
Private-sector payrolls today are lower than they were at the end of
1999.

In addition to replacing 7.2 million lost jobs, the economy needs an
additional 100,000 a month to keep up with population growth. If the
job market returns to the rapid pace of the 1990s -- adding 2.15
million private-sector jobs a year, double the 2001-2007 pace -- the
U.S. wouldn't get back to a 5% unemployment rate until late 2017,
Rutgers University economist Joseph Seneca estimated. And that assumes
no recession between now and then. "Even with some very optimistic
assumptions, it's a long road back," Mr. Seneca said.

Where will the jobs come from? In the short run, a growing economy
means some businesses will recall laid-off workers. But others won't.
Many jobs in real estate and finance, for instance, are likely gone
forever. And those in retail and leisure may be slow to return if
consumers are reluctant to spend. Federal-government spending -- in
research and development, in stimulus spending on the digitization of
health records and energy efficiency -- will create some jobs. But that
leaves open the big question of whether the private sector can create
jobs when stimulus spending ebbs.

Health care and education have proved resilient in the recession and
are expected to be big gainers over the long run. Even if lawmakers
find a way to slow health spending, adding more Americans to insurance
rolls would raise demand for health care. But that would only go part
of the way toward creating two million jobs a year. The Labor
Department estimates health care will add about 300,000 jobs a year
through 2016.

The service sector will be key, particularly jobs based on
analytical skills that require specialized training. "It's not
manufacturing," said Nigel Gault, chief U.S. economist at forecasting
firm IHS Global Insight. "Wherever the U.S. has a comparative advantage
in brainpower will be strong sources of job growth. You have to keep
generating the innovations here in order to keep generating the
employment gains."

The White House and many lawmakers are counting on "green" jobs
built around clean-energy technology. President Barack Obama wants the
U.S. to create five million such jobs -- from solar and wind to energy
efficiency -- over the next decade. Getting there would require
advances in current technology from transmission lines to energy
storage and advances in training -- all of which are likely to take
years.

Columbia Gorge Community College started a
renewable-energy-technology program in early 2007 with 58 students
during that year. For the current academic year, it has 156 students
learning about wind towers and electrical systems, and the school
turned away 100 for lack of space.

But will the graduates find jobs? Dave Fenwick, a 57-year-old
software engineer, started in the program in the spring to find a more
dependable source of income after business in his field ran dry. He
expects to have his one-year certificate in December and to have a job
eventually -- but he isn't counting on getting hired immediately. "None
of the companies building wind farms can get financing, so they're not
hiring many technicians," Mr. Fenwick said. "Things have just been
stagnating waiting for credit to be freed up."

"I'm definitely depending on the economic stimulus to help get some
job openings to us by the time we graduate," he said. "Without it, it
might take a little bit longer."

IHS Global Insight predicts the total number of jobs in the U.S.
won't return to prerecession levels until 2013. And that doesn't
account for the growth in the labor force, so it forecasts unemployment
will be a painfully high 8.1% then. Getting back to the 5% unemployment
rate that prevailed before the downturn isn't anywhere in the firm's
10-year forecast horizon. At the end of 2019, it puts unemployment at
5.75%.

Write to Sudeep Reddy at sudeep.reddy@wsj.com