Unemployment

Real Recovery Means Better Jobs and More Jobs

By Diana Dayoub

As we look to post-pandemic America, it’s important that job quality is as much a public policy priority as quantity. Recent past history tells us this is not always the case. To some degree, that’s understandable because the economic indicator we rely on to explain worker wages gives us a distorted view of how they are really doing.

Following the Great Recession, the conversation was largely about quantity of jobs. In February 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA).(1) The $831 billion bill outlined job creation and economic recovery objectives through a plethora of channels including extending tax credits to those impacted by the recession, investments in transportation and environmental protection, among others. One of the key provisions was to get people off the unemployment payroll. The Office of the President declared ARRA a success, citing substantially positive quarterly growth in real GDP and payroll employment.(2)

A further post-recession initiative, the Hiring Incentives to Restore Employment (HIRE) Act of 2010, was intended to spur private sector employment by exempting employers from paying their share of the Social Security payroll tax for 2010 for eligible new hires and “provid[ing] a $1,000 tax credit to employers if they retain eligible workers for 52 weeks.”(3) Economists and policymakers extolled the 10.6 million new hires. A miniscule drop in unemployment caused a deep sighs of relief in economic circles. Wages, the employers’ contribution to health insurance, and paid leave weren’t making headlines.

It would seem that these aggressive post-recession efforts worked. Wage data from the Bureau of Labor Statistics (BLS) shows that median usual weekly earnings increased by 0.9% between the first quarter of 2007 and the end of 2010. Indeed, workers appeared to be doing slightly better than before the recession. But the BLS number that explains this progress is tremendously misleading. The sample for which median wages are reported includes only those workers who are employed full-time, thus artificially increasing the median wage when full-time workers move to part-time jobs or lose jobs altogether. This number is particularly problematic in recession times because many full-time workers either become unemployed or see a reduction in hours, thereby helping produce a spike in BLS-reported median earnings.

At the Ludwig Institute for Shared Economic Prosperity (LISEP), we decided to give policymakers and the public a more realistic view of worker earnings. We enlarged the sample of wage earners to include the entire U.S. labor force, as defined by the BLS, and calculated the True Weekly Earnings (TWE) using the bureau’s methodology.(4) The difference is striking. For the same 2007-2010 period, the weekly median wage dropped by 7%.

Joblessness did decline following the government’s Great Recession stimulus efforts, but we weren’t focused on the fact that displaced workers were accepting lower-paying jobs. The TWE measure for the entire labor force, however, does reflect this displacement to lesser jobs, as shown in the figure below.  

While more jobs were added, workers suffered earnings losses for years. In fact, the TWE indicates that between mid-2011 and mid-2014, median wages remained almost stagnant at about $700 a week. And displaced workers had an even worse experience; they consistently suffer from what economists call “scarring” following job displacement, which happens when displaced workers “continue to earn less or to be unemployed more than their nondisplaced counterparts.” A 2011 Brookings study affirmed that “[l]ong-tenure workers who lose jobs in mass-layoff events experience large and persistent earnings losses compared with otherwise similar workers who retain their jobs,” and this effect is true for most recessions. The Census Bureau’s Displaced Worker Supplement of the Current Population Survey shows that the median worker earned $712 weekly if he or she managed to obtain a full-time job in 2010 compared to the  $812 earned at the full-time job that was lost during the recession. This is a full 12% decrease in weekly earnings.

In the American Jobs Plan, the Biden administration signaled a commitment to create jobs that pay decent wages in “safe and healthy workspaces.”(5) Hopefully, this is an indication that the jobs discussion as we emerge from the pandemic recession focuses on quality, too. One way to change the debate for good is for the TWE to replace the BLS’s earnings statistic so we know much more precisely how workers recover.

August 23, 2021