V. The Shortfall in the Employment Level

The addition of 3 million jobs in the recovery barely kept pace with the growth in the workforce and was not sufficiently large to take a bite out of the jobs gap opened up by the recession. As a result, the shortfall in employment at the end of 2011 was almost as big as it was at the end of 2009. This general pattern—employment growth just keeping pace with additions to the stock of workers and failing to make a dent in the jobs gap—repeats for each racial and ethnic group, for foreign-born and native-born workers, and for men and women.

The jobs gap measures the difference between potential employment and actual employment. Potential employment is defined as the share of the working-age population that would be employed under more typical economic circumstances. In recent economic history, the norm for the overall employment rate is 63.3%. That is the average value of the employment rate in the ten-year period that preceded the peak of the housing market boom—1995 to 2005. This period encompasses the second half of the economic expansion in the 1990s, the 2001 recession, and a period of slow economic recovery from 2001 to 2003.

The U.S. employment level prior to the start of the recession was at full potential. Actual employment in the fourth quarter of 2007 was 145.8 million and potential employment, measured as 63.3% of the working-age population, was 146.5 million. By the fourth quarter of 2009, the recession had pushed actual employment down to 138.1 million. But, because of the growth in the working-age population from 2007 to 2009, potential employment had increased to 149.6 million. Thus, in the fourth quarter of 2009, the jobs gap for the U.S. economy was 11.5 million.

As the labor market recovered from the effects of the recession, employment increased from 138.1 million in the fourth quarter of 2009 to 141.2 million in the fourth quarter of 2011. The actual gain in employment was only slightly higher than the growth in potential employment from 149.6 million to 152.3 million. Because employment growth was sufficient only to match the additions to the workforce, the jobs gap at the end of 2011—11 million—was about as high as it was at the end of the recession.

Potential employment may also be estimated for subgroups of workers based on historic norms in their employment rates. From 1995 to 2005, the average employment rates for individual groups are estimated to have been as follows: Hispanics, 62.8%; whites, 64.2%; blacks, 58.6%; Asians, 63.4%; foreign born, 62.4%; native born, 63.4%; men, 70.6%; and women, 56.6%. These employment rates, applied to the working-age population of a group, yield the potential employment for a group at any point in time.

The jobs gap is estimated to be the greatest for black workers. Their actual employment in the fourth quarter of 2011—14.6 million—was 1.8 million, or 12%, less than their potential employment. The next highest jobs gaps is for whites with actual employment—96.4 million—falling 7.2 million, or more than 7%, short of its potential. The jobs gap for Hispanics is 1.2 million (6%), and the gap for Asians is 364,000 (5%). As is the case overall, the percentage gaps for all racial and ethnic groups are only slightly smaller than they were two years ago.¹³

The employment of foreign-born workers is closest to its potential. In the fourth quarter of 2009, the employment of foreign-born workers—21.5 million—was only 600,000, or 2.7%, below its potential. In the fourth quarter of 2011, the jobs gap for foreign-born workers is estimated to have been cut in half to 300,000, or 1.4%. By contrast, the jobs shortfall for native-born workers was 9.3% in the fourth quarter of 2009 and 8.9% in the fourth quarter of 2011. The relatively shallow jobs gap for foreign-born workers is most likely a result of the fact that many of them come to the U.S. based on their employment prospects.

Women present an exception to the general trend of a reduction in the jobs gap. For them, employment was 3.5 million (5%) below potential in the fourth quarter of 2009. By the fourth quarter of 2011, women’s employment was 3.9 million (6%) below its potential. The jobs shortfall for men is greater, but it is trending down, from 8.1 million (11%) in 2009 to 7.3 million (10%) in 2011.

The magnitudes of the jobs gaps underscore that it will take more rapid job creation to clear the backlog in employment for all groups. Among racial and ethnic groups, the growth in employment has been faster for Hispanics and Asians, but because their population is also growing faster they are in the same position as other groups, that is, facing an employment shortfall nearly as large as it was at the end of the recession.

There is some variance in the experiences of workers within nativity and gender groups in the recovery. The jobs shortfall for foreign-born workers is much less than it is for native-born workers, but the ebb and flow of the immigrant population is itself related to job prospects. At the end of the recession, men faced a jobs gap that was twice as large as the gap for women. But the jobs gap for men has fallen from 2009 to 2011 even as the gap for women has risen. By this yardstick, the economic recovery has proceeded in opposite directions for men and women.