Time and again you hear pundits say that what the U.S. experienced in the last decade was a terrible boom/bust cycle for the housing and credit markets. But then, almost in the same breath, they oftentimes say the nation must do whatever it can to get those eight million jobs back that were “lost” when the housing bubble burst.
But, does that make any sense?
Were those jobs really “lost” or should a good many of them have never existed in the first place?
Anyone with a rudimentary understanding of economics would conclude that, since many of the jobs created early in the decade were related to housing – construction workers, mortgage brokers, etc. – that they won’t be coming back anytime soon, at least not as long as the housing bubble remains “popped” (which is a pretty good bet over the next few years).
Of course, since the early-2000s housing boom was, effectively, the cure for the stock market boom that went bust at the turn of the century, one could argue that what the government and central bank need to do is create a new and different asset bubble.
But, so far, Fed Chief Ben Bernanke and crew seem to be shooting blanks.
In lieu of another asset bubble, maybe the nation ought to collectively lower its expectations about the labor market rather than harping about the unemployment rate all that time.
Hey, the U.S. had a pretty good run there in the 80s and 90s as one credit-fueled expansion followed another and then we had one last hurrah seven or eight years ago when even the nation’s brightest economists thought we were all going to be wealthy forever as a result of perpetually rising home prices.
But, now it seems pretty clear that we’ve run out of bubbles and maybe we should get used to the idea that the jobless rate will be high for a long time to come (think Europe) and that many of those eight million “lost” jobs were like that mid-2000s housing wealth – fleeting.
In fact, we should all probably stop calling them “lost” jobs and begin referring to them as what they really were – temporary jobs.
Temporary jobs that lasted as long as high home prices did.
Of course, this is a tough sell for politicians visiting Main Street during this election year. In fact, the idea that those jobs aren’t coming back and that there’s nothing on the horizon to replace them might just dim even the most popular elected official’s chances at holding onto their seat and that’s probably why you won’t hear it.
Some politicians like to say “We need to level with the American people”.
Well, now would be a good time to level with the American people about jobs.
When looking at the data, it seems clear that, absent another Federal Reserve sponsored asset bubble, things don’t look good for the labor market.
Those of you who were around at the time might recall that Asha Bangalore at Northern Trust was one of the first to notice the increase in housing-related jobs early in the last decade, noting back in 2005 (see this related post at the time) that a whopping 43 percent of net payroll gains over the four prior years were housing related.
As shown below, that proved to be the culmination of a decade long boom in construction jobs (only interrupted for a few years as the internet bubble burst) and, relative to the U.S. population, we’re now back to levels that we’ve seen before after similar property busts in 1976, 1982, and 1991.
More than two million construction jobs were lost in 2008 and 2009, but that doesn’t mean these jobs should now come back since the recession ended – not until another property boom gets underway and, given the length of the last boom, that may take some time.
A similar story is seen, for example, in retail sales and finance where payrolls declined by a combined 1.5 million beginning in 2007 as shown below.
Clearly, while a growing population will require more clerks to ring up groceries and life’s other essentials – that’s part of the reason why retail trade jobs have rebounded – there’s no reason to think that all the cashier jobs that were created six or seven years ago (i.e., when everyone was out spending their home equity as fast as it grew) will be coming back.
As for payroll levels in the financial industry, we may have seen a generational high at 8.3 million back in 2007 because, if there’s one thing that we should have learned over the last few years, it is that we’d probably be better off with fewer people working in finance.
Just these three categories – construction, retail trade, and finance – account for nearly half of the eight million jobs that were “lost” in recent years, yet these same groups account for only about one-fifth of the entire U.S. workforce.
These jobs weren’t “lost”, in the sense that they’ll somehow be found again, that is, unless Ben Bernanke inflates another asset bubble.