Unemployment's Big Drop in 2012

The double-nothings (the decade from 2000 to 2009) were the worst for job creation in half a century. From the 60s to the 90s, the economy created an average of about 2.5 million jobs per year. In the decade from 2000 to 2009, the economy actually lost an average of 100,000 jobs per year.

It seems to me that the central economic question is whether the last decade was an anomaly, an aberration for an economy still generally able to create jobs or ... if the last decade was a culmination in a downward spiral, further proof that our economy is sputtering on its way to stagnation.

If we just look at the raw numbers by decade, you can see that job creation was fairly stable until last decade.

Just looking at these numbers, it is easy to think that perhaps starting with 9-11, the US tumbled into a "lost decade" economically, hardly able to exceed the average of past decades in even its best decade. If that's the case, it is easy to believe that we'll have a return to norm, and that return will seem spectacular. Just an average year for past decades - creating 2 million or more new jobs - would be enough to lower unemployment by a point and change the mood of the country. And given aging baby boomers, this is is not an unreasonable forecast.

But these numbers are not adjusted for the fact that we have a larger labor force than ever. In the 1960s, we had half as many people working (or looking for work) as we do now. Scaling the above numbers to adjust for this (assuming that 1.7 million jobs in the 60s is equivalent to 3.4 million in today's economy, for instance), gives the graph a different shape.

This graph shows a downward slide, a steady worsening in our ability to create jobs. The narrative here would include factors such as the rise of emerging economies like China and India becoming more competitive with our own and making it more difficult for us to create jobs where labor makes (relatively) so much more. This story and graph suggest that until we hit some floor that puts us on par with other countries, we'll continue to struggle. Job creation won't keep up with growth in the labor force and unemployment will steadily rise. You probably have your own narrative to explain this.

Personally, I think that we're facing some hybrid of these two stories, but tend to favor the first story more. That is, I think that we'll continue to feel downward pressure on wages but I do think that the last decade was an anomaly in terms of job creation; I suspect that by the end of 2012, unemployment will be under 7.5% and during the next year we'll create 2 to 3 million new jobs. In other words, we'll create as many jobs next year as we did - on average - in past decades. And given what a terrible decade the double-nothings were, this "average" will seem spectacular.