By SUDEEP REDDY, THE WALL STREET JOURNAL http://online.wsj.com/article/SB124433687361391693.html
Eighteen months into the recession, U.S. workers are still rapidly losing jobs. And they may have to wait years before seeing a full recovery in the labor market.
The government on Friday said the economy lost 345,000 jobs in May, fewer than the number shed in April. The unemployment rate hit 9.4%, the highest since the early 1980s, and is expected to shoot even higher in the coming months.
The latest employment decline came alongside hope in recent weeks that the economy is ending its free fall. Housing activity is stabilizing, and consumer confidence is turning up.
But a turnaround in the overall economy won't translate into a full turnaround for workers. Most forecasters expect employers to slash more jobs than they're adding at least through the end of the year. The huge job losses may end, but they won't turn into meaningful job gains until sometime in 2010.
What happens to the labor market once the economy is growing again? Some past recessions, especially those with the largest employment declines, saw the job market rebound strongly once the overall economy picked up. But that's not a sure thing. The aftermath of the 2001 recession was dubbed a "jobless recovery" because employers continued shedding workers even as the economy showed robust growth.
Despite indications that the worst monthly job declines are over, the road to recovery will be bumpy for the next year. Employers remain unsettled from a turbulent financial crisis. So many millions of people are out of work that absorbing them back into new jobs will take time. For the summer and fall, an improvement in the economy may not even be evident to most people out searching for jobs. After that, it'll be a long road back to the days of a tight labor market.
Some of the major employment concerns now:
Has the job market been this bad before?
Only a handful of times since the Great Depression. The economy has shed six million jobs since the start of 2008. That's almost one out of every 20 jobs, making the current decline the worst drop in a half century. Unemployment has doubled since the start of the downturn, with 14.5 million people looking for jobs in May. The jobless rate is likely to approach, and maybe even surpass, 10% by year end.
How long will unemployment remain high?
Forecasters expect unemployment to remain elevated at least into 2012. The overall economy is expected to start recovering late this year and into 2010. But employers may be slow to hire workers until they're sure demand for their products and services has rebounded.
What will that mean for paychecks?
Don't expect too many raises. When the economy is weak, employers can keep wages contained because workers find it much harder to secure jobs elsewhere. Companies also see productivity increase as they get more output out of fewer workers. That helps companies restore their profitability.
Many employers have already cut salaries and benefits in addition to jobs. Companies also are cutting workers' hours, instituting furloughs and forced vacations and cutting benefits such as tuition reimbursement.
Where are the worst job declines expected?
The U.S. manufacturing sector will remain in turmoil through much of the year. General Motors and Chrysler are shedding tens of thousands of jobs, and it may take years for foreign auto makers to pick up many of those workers from U.S. plants.
Construction remains depressed given the severity of the housing downturn, and a further drop in construction jobs could come as commercial building slows. Also, the financial-services sector is expected to continue shedding workers.
Which employers are adding jobs?
Health care remains the most resilient sector as demand for nurses and other medical workers continues high. Education also remains relatively strong, though some local governments are starting to cut payrolls for their schools.
The federal government is seeing a surge in hiring -- including about 1.4 million workers for the 2010 Census. (See this week's Starting Out column.)
"Government has become quite large and the size of government will not be reduced for several years, if then," says Joseph Brusuelas, an economist at Moody's Economy.com.
Where will the economic stimulus produce jobs?
The $787 billion economic stimulus package is just starting to kick in. The money is helping some state and local governments keep workers on their payrolls. And funding directed to roads, bridges and other local projects will help the construction sector in particular.
"As more and more money pours into infrastructure projects, we're going to see a lot more jobs being created," says Sung Won Sohn, an economics professor at California State University, Channel Islands.
But much of the stimulus money won't kick in until next year. That means it could help the recovery, but many workers will be waiting in the meantime.
Who will have the most trouble finding jobs when the economy turns around?
Many workers won't be able to find jobs in their local areas, particularly those in the manufacturing sector. That's especially true for older workers. People with houses that are difficult to sell also may find it hard to move elsewhere for a new job.
"If you're 50 and you live in Ohio or Michigan or Indiana, you're going to have a tough time," says Mr. Brusuelas. "If you're 30, you haven't bought a home or you've been priced out of the real-estate market, you're going to find lots of opportunities."
He says younger, more mobile workers -- especially those with technology skills -- "will be able to respond to the incentives that the economy provides as we emerge from the recession."
Write to Sudeep Reddy at sudeep.reddy@wsj.com
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