Another refreshingly objective piece from the San Fran Fed, this time dealing with the question of whether to expect a recovery in employment; the Fed comes out with what sounds like a resounding no.
Even more dramatic, however, has been the break from past patterns in the number of workers who are involuntarily employed part-time. Numerous reports tell of workers being furloughed for a set number of days in a month or asked to work fewer hours each day.These anecdotes are supported by the monthly data. Indeed, the number of workers employed part-time against their wishes is at historical highs.The fraction of the labor force that reports working part-time for economic reasons has increased from 3.0% in December 2007 to 5.8% in April 2009.This increase has been broad-based, occurring in a wide range of occupations. Moreover, the reduction in hours has not been trivial, with more than half of such workers experiencing reductions of five hours per week or more.
What does all this mean for the labor market? We combine data on involuntary part-time workers with the standard unemployment rate to arrive at an alternative measure of labor underutilization. We plot this measure in Figure 3, which shows that the labor market has considerably more slackthan the official unemployment rate indicates.The figure extends this labor underutilization measure using the Blue Chip consensus forecast for the unemployment rate as a benchmark and then adding a share of involuntary part-time workers based on the proportion of workers in that category to the unemployed during the current recession. This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-WorldWar II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.
The full Fed report should be read in its entirety to get a sense of the ongoing "against the grain" language coming out of San Fran and other regional Feds seems to be becoming a significant countertrend to the optimism exhibited by Mr. Bernanke and others in the administration.