Big Job Gains Are Coming, But Not Yet and Not Enough

The economic disruption caused by the coronavirus has led to huge questions about what the employment situation in the U.S. will look like in a few months, let alone in the next year or so. Forecasts of annualized real gross domestic product growth in the second quarter of -40% and an unemployment rate peak of 25% are well within reason. If there's a bright spot for workers, it's that the historic relationship between real GDP and employment suggest that, millions of workers will need to be hired back fairly soon just to keep the economy running at its current low level. Short-term pandemic disruptions are unpredictable, but we should expect a return to the historic relationship between output and employment before too long.

We can see how tight the relationship is between real, or inflation-adjusted, GDP and employment by looking at a long-term chart. Over the decades we've had big and small booms and busts, but dividing real GDP by employment shows a relatively stable relationship. The gentle rise accounts for productivity growth, as the economy becomes more efficient. There's nothing magical here; real GDP can be thought of as a function of hours worked and productivity. But it's useful to keep in mind when we're experiencing historic levels of economic disruption.