The Great Recession officially lasted from December 2007 to June 2009, although its impact was delayed in Iowa (where job losses began in May 2008, and did not begin recovering until the end of 2009). The chain of events is by now familiar: The collapse of an $8 trillion housing bubble led to a dramatic decline in aggregate demand (triggered not only by the accompanying financial crisis, but also by the blow to household wealth as home prices and home equity fell). As consumer spending and business investment both slowed, unemployment rose dramatically — swallowing over 6 percent of nation’s job base.
The recession was stark in its depth and its duration, and the recovery has been painfully slow. Figure 1 captures this in a comparison of the trajectory of postwar recessions (and recoveries) for the U.S. and Iowa. For the nation, the 2007 recession far exceeds — in its length and in its jobs losses — those of any other postwar downturn. Even if the national economy adds 208,000 jobs per month (the average monthly rate for the best year of job creation in the 2000s), by one estimate, it will take eight more years to struggle to the surface. For Iowa, the jobs losses were deeper in the double-dip recession of the early 1980s, but they are likely to last longer this time. By the same criteria (assuming monthly gains equal to best monthly average of the last decade), Iowa is still over 18 months from getting back to its peak pre-recession employment threshold.
This, of course, understates the real problem. It is now approaching five years since the onset of the downturn and the labor force has continued to grow throughout this period. We are 36,000 jobs short of the pre-recession peak in Iowa, and 89,000 short of the jobs we would need to keep pace with population growth at pre-recession employment rates. In order to clear this jobs deficit within three years [see Figure 2] we would need to add about 2,500 jobs a month. Since the recovery began we have averaged just over 1,000 new jobs per month.
The impact of unemployment has been uneven geographically across Iowa, as shown in the map below, which tracks unemployment by county from January 2006 through June 2012. The jobless rate in most counties rose sharply in early 2009, and stayed high through mid-2011. Marked improvement is evident in most most counties by June of this year. [Figure 3].
As dismal as the unemployment rate has been in recent years (peaking nationally at 10 percent in October 2009 and not reaching below 8 percent until September of this year), it does not capture the extent of the damage done by the recession. Uncounted in the basic unemployment rate are those so discouraged they have left the labor force and those working part-time jobs because that’s all they can find. Furthermore, the unemployment rate by itself understates the severity of the problem because it does not reveal the extended periods for which many have been out of work. Of the nearly 13 million unemployed, less than half (about 5.9 million) currently receive unemployment benefits — and many more will face this cliff when they lose extended benefits). This long-term hardship more often affects blacks, Latinos and those with a high-school education or less.
Figure 4 and Figure 5 capture these broader measures of unemployment’s human impact over the last decade in Iowa. Although Iowa fares better on most of these measures, we have seen dramatic spikes in underemployment (a measure that includes those too discouraged to look for work, and those working part time involuntarily) and long-term unemployment (lasting longer than 26 weeks). In turn, unemployment does not only harm the prospects of the unemployed; because there is more competition for existing jobs it means lower wages and benefits for those working, a blow to lifetime earnings for young people unable to gain a foothold in the labor market, an erosion of retirement security for older workers, and a loss — to workers and consumers alike — of productive potential, innovation and investment.
For further background on the national recession, see The Economic Policy Institute’s feature on The Great Recession in its latest State of Working America; the Center on Budget and Policy Priorities’ chartbook, The Legacy of the Great Recession; regular reports on the economic crisis and recovery from the Center for Economic and Policy Research; and the job creation and economic recovery work of the National Employment Law Project.
Austerity in state and local government has prolonged the downturn. Public-sector jobs support private-sector jobs both because the public sector buys goods and services from the private sector, and because public-sector pay is spent in the private sector. Iowa’s deficit of 16,400 state and local government jobs (about half lost during the business cycle, about half lagging behind population growth) since 2007 has, by one estimate, cost the state an additional 11,000 private-sector jobs. See Josh Bivens and Heidi Sherholz, Three years into recovery, just how much has state and local austerity hurt job growth? (EPI, June 2012).