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The Great American Jobs Machine Is Conking Out

January's payrolls decline underscores a troubling trendthe U.S. economy's ability to generate new jobs is fading fast
TIM SLOAN/AFP/Getty Images

Like lava flowing from a volcano, creative destruction—the economic notion that old companies and industries have to be wiped out before new ones can be born, first popularized by economist Joseph Schumpeter—is scary but beautiful. In the New Economy of the late 1990s, this phenomenon turned the U.S. into an amazing job-generating machine, because the rapid destruction of companies and jobs in flagging industries was outpaced by even more rapid creation of new jobs in growing sectors. From the bottom of the 1991 recession through the economy's peak in early 2001, the U.S. created 24 million jobs.

That creative/destructive energy, triggered by rapid technological change and globalization, is long gone. From the end of the 2001 recession through December, 2007, the U.S. economy added just 7 million jobs. Even taking into account that this expansion has been shorter than the 1990s one, the growth rate of jobs was about half as fast this decade.