It is likely that the unemployment rate is going to hit 10 percent when the next monthly report comes out on Friday. That is 1 in 10 people without a job (in fact it is worse because the official statistics significantly undercount). Now we have had some growth in the economy last quarter, but a non-trivial portion of that was attributable to increased military spending and the cash-for-clunkers program, and, as Krugman points out, at a modest rate of growth it historically takes a long time to return to a lower level of unemployment.
But I believe that there is an even deeper issue at work here that doesn’t seem to get much attention: structural change in the economy (see previous posts). When the economy is doing well it allows many companies to go on without making big changes. After all, change is hard and many people prefer to go on as they have. In other words, a good economy lets companies postpone changes. There is an analogy here with kaizen and manufacturing. When you have a lot of intermediate inventory (instead of producing with lot size 1), you can hide problems in your underlying processes.
When the economy tanked, however, many companies had to go on a crash diet. They laid off a lot of people fairly quickly. Now I am convinced that many of those companies are finding that by more dramatically reorganizing how they work they can get along perfectly well without most of those people even as growth comes back to their businesses. So if you believe, as I do, that the economy is changing more deeply, the outlook for employment growth is even more negative than currently suggested.
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