Elliot Parker

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February 12, 2012
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State recovery: Be fast, but be careful

Every president, regardless of party, tends to be judged by the electorate on how the economy performs under his watch, even though this performance is not entirely under the control of our elected officials.

The public sector - mostly local government, but also federal and state - employs only 16 percent of American workers and produces only 12 to 13 percent of our nation's gross domestic product, so it is the private sector that really determines how our economy performs. Events from the past and from other countries also have a huge effect, but the government's budget decisions, regulations, tax rates and other policies still matter.

People often focus on GDP growth, adjusted for inflation and sometimes population. During the latest recession, real per-capita GDP fell by 6.4 percent from the start of 2008 through mid-2009, and then began to slowly recover. A problem with GDP, however, is that it tells us nothing about how the income from what we produce is distributed. GDP can grow even when people are losing jobs, if the average income of those at the top is increasing faster.

People also focus on the unemployment rate, and the national rate rose from 5 percent in 2007 to 10 percent in 2010 before coming down. However, this rate is relative to those counted as either working or looking for work. When unemployment is rising, many unemployed workers get discouraged and stop looking. When the economy starts to recover, they re-enter the market to look for work. As a result, the unemployment rate can lag behind the economy, and in the short run it can confuse us about the economy.

Actual employment is sometimes a better measure of economic performance, and this recession cost the U.S. economy almost 8.8 million non-farm jobs in the two years from early 2008 through early 2010. This was about 6.3 percent of our total jobs.

This was much worse than any other postwar recession. In the early 1980s, during the first 24 months of President Ronald Reagan's first term, we lost 2.3 percent of jobs in what we then said was the worst recession since the Great Depression. In the recession of 1991-92, under President George H.W. Bush, we lost only 0.8 percent of jobs, but he still lost his job to President Bill Clinton. In the first two years of President George W. Bush's first term, a recession cost us 1.7 percent of jobs, and in the third year employment barely grew by 0.1 percent.

In the last year of the second Bush's second term, however, the economy hit a wall, and then it fell on us. In the year before he left office, the economy lost 4.5 million jobs, or 3.2 percent of total employment. Half of this loss occurred in the last three months, as we plummeted into the scariest recession in most of our lifetimes.

For the next year, President Barack Obama's first year in office, the economy lost 4.3 million more jobs, though the rate of decline slowed after the middle of the year. Officially the recession ended in mid-2009, but it would be a long, slow recovery.

In the two years since, we have added back over 3.6 million jobs in the private sector, while still losing half a million jobs in the public sector. Counting the 5 million jobs that would have normally been added since 2007, we still are 10.6 million jobs short of where we were. The number of unemployed grew because job growth wasn't enough for all the new entrants.

This last year's private sector growth rate of 2.1 percent finally exceeded the normal job creation rate, so we are starting to regain lost ground. At the current rate of private-sector job growth, if the public sector stabilizes this year and nothing else derails us, it will take America five more years before employment recovers, since we must also find jobs for all of those who have since entered the job market.

In Nevada, the tale is even tougher to take. Nevada's real per-capita GDP fell by a combined 12.6 percent in 2008 and 2009, and then fell again by 1 percent in 2010. Our unemployment rate rose from 5 percent in 2007 to almost 15 percent in 2010, before falling back to 12.6 percent now.

But the best measure of this recession's impact is that Nevada lost 80,000 jobs in 2008, an additional 87,000 jobs in 2009, and then 18,000 more through September 2010. This added up to 14.3 percent of total state employment, a job loss of more than twice the national rate. Since then, we added back only 9,000 jobs, a mere 0.8 percent of jobs. At that rate of recovery, it will take Nevada almost 30 years to catch back up to 2007, even if nobody ever moves here again.

Most of this recent employment uptick has come in casinos, restaurants and hotels, and almost all of that happened in Las Vegas. The rest of the nation is starting to recover, so folks are coming back to Sin City for their vacations and conventions. Indeed, Nevada's private sector has added 17,000 jobs in the last 15 months, an increase of almost 2 percent.

Declines in public-sector employment, however, canceled out over half of this last year's private sector growth. The state, cities and counties have shedded 17,000 government jobs in Nevada since the middle of 2008 and 5,300 in the last year alone, adding up to a net decline of 11.6 percent. If this stabilizes, now that tax revenues are starting to recover, then the current rate of growth in private sector jobs suggests it will take only 20 years to claw our way back.

While these employment numbers don't distinguish between good jobs and not-so-good jobs, or part-time and full-time employment, they still tell an important part of the story. Nationally, it appears we are finally and consistently headed in the right direction in employment. In Nevada, we have started to add jobs back as well, but too few to feel any confidence. We need to be careful not to mess this up, and we need to pick up speed.

• Professor Elliott Parker is chairman of the Department of Economics at the University of Nevada, Reno.

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The Nevada Appeal Updated Feb 12, 2012 04:42AM Published Feb 12, 2012 04:41AM Copyright 2012 The Nevada Appeal. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.