Recovery: Where Will the Jobs Come From?

The good news is that the downward momentum of the Great Recession is subsiding. The financial panic that seized the global capital markets has eased. CEOs are no longer acting as if depression looms.

That said, the consensus forecast is for the economy to emerge slowly out of the downturn. The recovery won't feel much like one, and that's bad news for a labor market where 6.5 million jobs have been lost since the recession began. With the unemployment rate climbing toward double digits, it isn't only Republican lawmakers who are wondering "where are the jobs?" "It's always the case that in the depths of the recession it's hard to say where the jobs will come from," says Barry Bosworth, economist at the Brookings Institution.

So, where will the jobs come from? The White House Council of Economic Advisers recently asked just that question. (You can read the report at To come up with an answer, the economists updated the Bureau of Labor Statistics' job projection numbers that were last published in 2007. The CEA's projections run from 2008 through 2016.

Sharp Rebound in Manufacturing Jobs?

To some extent, the CEA's answer to the trillion-dollar question is: where they're coming from now. (See the accompanying chart.) Health care and education are two sectors of the economy that have expanded throughout the downturn, and both are expected to account for a major share of job growth over the next several years. Employers in all industries will favor workers with skill and education ranging from certificates earned at community colleges to higher degrees.

On the other hand, retailing is likely to continue shrinking.

Cyclically, export-oriented industries should get a boost as the global economy revives. American-made goods are increasingly competitive, with the dollar relatively weak compared with other major foreign currencies. Indeed, Bosworth expects a sharp rebound in manufacturing employment, especially in the manufacturing-heavy Midwest. It wouldn't take much of a pickup in orders for manufacturing management to recall laid-off workers. "The long-term trend is bad," he says. "But the cyclical trend will be positive because it got clobbered so badly."

Economists believe there will be job growth over the next several years. The Great American Job Machine is grinding away slowly at the moment. But job creation is something the U.S. eventually does well. Problem is, it could take years to work down a 10%-plus unemployment rate to more acceptable levels, say, in the 5% range. Wages are likely to be anemic, too, considering how tough the competition will be among laid-off workers for jobs. Income inequality could worsen. "I'm reasonably confident about the state of employment," says Joshua L. Rosenbaum, economist at the University of Kansas. "I worry more about the income level we will have."

Wild Card: Innovation

The wild card in all this is that job forecasts are notoriously unreliable. The reason is technological innovation and the discovery of new ways of doing business. Innovations can generate jobs—if they materialize. For instance, in 2003 a quarter of American workers were in jobs that weren't listed in the Census Bureau's occupation codes in 1967. You sure won't find words like "Web designer" or "mobile-phone salesperson" in the LBJ-era list.

"What's unpredictable are the physical gizmos that will trigger a multiplier effect with employment," says Amar Bhide, visiting professor of economics at the Kennedy School of Government at Harvard University. Daniel Boorstin, the late historian, captured the dynamic this way in a 1987 essay: "Who, for example, could have predicted that the internal-combustion engine and the automobile would breed a new world of installment buying, credit cards, franchises, and annual models—that they would revise the meaning of cities, and even transform notions of crime and morality with no-fault insurance."

Problem is, no one can say whether such innovations will appear. Until they do, the prospect is for higher unemployment in the short run and a slow climb into mostly knowledge-based jobs somewhere down the road. The jobs machine may have to wait for a new power source to kick it back into high gear.

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