Mort Zuckerman: A Jobless Recovery Is a Phony Recovery

There are a lot of reports out there saying the economy is looking up and America is on its way to recovery. However, that is not the case. The jobless nature of the recovery is problematic. A recent survey reported that since the start of the year jobs increased by 753,000. However, 557,000 of those positions were only part-time.

By MORTIMER ZUCKERMAN
July 15, 2013, 7:09 p.m. ET
Wall Street Journal

In recent months, Americans have heard reports out of Washington and in the media that the economy is looking up—that recovery from the Great Recession is gathering steam. If only it were true. The longest and worst recession since the end of World War II has been marked by the weakest recovery from any U.S. recession in that same period.

The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000—but there are jobs and then there are "jobs." No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000—three million more part-time positions than when the recession began at the end of 2007.

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

The 7.6% unemployment figure so common in headlines these days is utterly misleading. An estimated 22 million Americans are unemployed or underemployed; they are virtually invisible and mostly excluded from unemployment calculations that garner headlines.

At this stage of an expansion you would expect the number of part-time jobs to be declining, as companies would be doing more full-time hiring. Not this time. In the long misery of this post-recession period, we have an extraordinary situation: Americans by the millions are in part-time work because there are no other employment opportunities as businesses increase their reliance on independent contractors and part-time, temporary and seasonal employees.

Even the federal government payroll is turning to part-timers: In June 2012, 58,000 federal workers were part-timers. This year it's 148,000, and we still don't know how the budget sequester will play out, for many agencies have resorted to furloughs rather than layoffs.

The latest unemployment report was as underwhelming as the Household Survey. The biggest gains in June came from leisure and hospitality industries, including hotels and fast-food restaurants. Of the 195,000 new payroll jobs, 75,000 were in restaurants and bars, where the average weekly paycheck is about $351, less than half the average for all other private industries. Not to mention that these positions offer fewer hours, especially in the restaurant world, which has averaged 26.1 hours per week versus 34.5 hours for all private employers.

What's going on? The fundamentals surely reflect the feebleness of the macroeconomic recovery that began roughly four years ago, as seen in an average gross domestic product growth rate annualized over the past 15 quarters at a miserable 2%. That's the weakest GDP growth since World War II. Over a similar period in previous recessions, growth averaged 4.1%. During the fourth quarter of 2012 and the first quarter of 2013, the GDP growth rate dropped below 2%. This anemic growth is all we have to show for the greatest fiscal and monetary stimuli in 75 years, with fiscal deficits of over 10% of GDP for four consecutive years. The misery is not going to end soon.

ObamaCare is partially to blame. The health-insurance law requires employers with more than 50 workers to provide health insurance or pay a $2,000 penalty per worker. Under the law, a full-time job is defined as 30 hours a week, so businesses, especially smaller ones, have an incentive to bring on more part-time workers.

Little wonder that earlier this month the Obama administration announced it is postponing the employer mandate until 2015, undoubtedly to see if the delay will encourage more full-time hiring. But thousands of small businesses have been capping employment at 30 hours and not hiring more than 50 full-timers, and the businesses are unlikely to suddenly change that approach just because they received a 12-month reprieve.

These businesses' hesitation to hire is part of a larger caution among employers unsure about the direction of government policy—and which has helped contribute to chronic long-term unemployment that shows no sign of easing. Unlike those who lose a job and then find another one in a matter of weeks or months, fully a third of the currently unemployed have been out of work for more than six months. As they remain out of the workforce, their skills deteriorating, the likelihood rises that they will be seen as permanently unemployable. With each passing month of bleak job news, the possibility increases of a structural unemployment problem in the U.S. such as Europe experienced in the 1980s.

That brings us to a stunning fact about the jobless recovery: The measure of those adults who can work and have jobs, known as the civilian workforce-participation rate, is currently 63.5%—a drop of 2.2% since the recession ended. Such a decline amid a supposedly expanding economy has never happened after previous recessions. Another statistic that underscores why this is such a dysfunctional labor market is that the number of people leaving the workforce during this economic recovery has actually outpaced the number of people finding a new job by a factor of nearly three.

What the country clearly needs are policies that will encourage the modernization of America's capital stock, where investment in modern production has plunged to the lowest levels in decades. Policies should also be targeted to nourish high-tech industries, which will in turn inspire the design and manufacture of products in the U.S. where they would be closer to the American market, spurring more hiring. This means preparing a skilled workforce, especially engineers suitable to work in manufacturing, and increasing the number of visas available to foreign graduate students in the hard sciences—who are now forced to leave America and who then work for foreign competitors.

Similarly, patent-application processing must be streamlined: The U.S. Patent and Trademark Office should be a channel for innovation, but instead has for too long been and an impediment to the swift introduction of new ideas. Finally, the country should engage in a major infrastructure program to improve airports as America once did for railroads and highways. Air cargo and air travel are linchpins of the economy, yet air-traffic-control technology is stuck in the last century.

It is imperative that the U.S. focus on innovative and creative policies. Otherwise, the five-year crisis in employment will continue even when the economy seems to be recovering. Without such a focus, millions of American families whose breadwinners are unemployed or underemployed will remain dispiriting and apprehensive about the future, especially the young who are entering the workforce. The country needs a real recovery, not a phony one.

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