The Great Recession and its Impact on Different Industries
The recent recession, now called the Great Recession by many, had significant adverse effects on the labor market overall. Even though the recovery has apparently begun and output has been growing since the second quarter of 2009, payroll employment is still about 6 percent less than it was at its prerecession peak in December 2007. New jobs are being created, but at a relatively modest pace—about 100,000 jobs a month on average have been added to nonfarm payrolls since the beginning of 2010.
This anemic hiring indicates a low demand for labor. However, the job openings data don’t look so grim. In contrast to payroll employment, the current level of job openings is a lot higher than it was at its recession trough in July 2009, when it hit 52 percent. Total job openings in the economy currently stand at 65 percent of their prerecession level. But while this is evidence that firms are looking for workers to fill vacant positions, it has not translated into a sustained increase in actual hiring.
This is not uncommon at the early phases of a recovery, since it takes time for firms to find the right match among the large pool of unemployed. But there is another reason employment growth could be sluggish, and it’s more of a concern. It could be that firms are willing to hire, but they are unable to find the workers they need among those who are unemployed. That problem is sometimes dubbed a “mismatch” of (worker) skills and (company) needs. If the mismatch is significant, one obvious place it might show up is if some sectors were affected by the recession differently than others. Since the Great Recession was accompanied by problems in the housing and the financial markets, some economists have argued that employment in these sectors might never go back to their prerecession levels. If this is true, we might see these sectors recovering more slowly than others, as workers who lost their jobs in these industries might lack the skills that are required for other sectors. There is not a clear way to see whether this has in fact happened, but we can look at the responses of payroll employment and job openings across different sectors as a start.
Construction was probably one of the sectors most affected by problems in the housing market. As a result, employment in this sector has shrunk by 25 percent since December 2007. Note that construction employment started to decline before the recession officially hit, but the timing coincides with many of the housing problems that arose before the recession. The job loss in this sector stands in stark contrast to the total employment loss of 6 percent. The disproportionately stronger effects of the recession on the construction sector are also evident in the job openings numbers. At one point toward the end of the recession, the number of job openings was barely 20 percent of the level in December 2007. If one takes into account the fact that construction employment was already in a declining trend by that time, the significance of the decline in labor demand is more obvious.
Another sector that was hard hit by the recession is the financial services sector (including insurance and real estate services). Contrary to what one might expect, the financial services sector did not experience a much larger loss than the aggregate economy. Total employment in the sector was about 8 percent lower than it prerecession level by the end of August. However, the response of labor demand was a little more pronounced. Job openings slumped by about 55 percent by mid-2009 before starting to climb upward. The average figure in the second quarter was around 80 percent of the prerecession level in December 2007.
This limited evidence suggests that those industries thought to be disproportionately affected by the recession, did in fact respond differently.