The Labor Market Recovery That Never Came

12/08/2011 06:19 pm ET

In the first full year of the U.S. recovery, of those Americans who worked, more held down full-time, year-round jobs -- but fewer Americans worked at all, according to new data from the government.

Additionally, in 2010, more Americans spent all year looking for work than they did in 2009, and found nothing. This may explain, in part, why fewer Americans worked or looked for work in 2010 than 2009 -- a year when the economy continued to hemorrhage jobs. Although the recession was declared done, the labor market never really recovered, and many people simply gave up looking.

In 2010, 6.6 million Americans looked for a job but didn't find work at all, an increase of 715,000 from the year before, according to a new report from the Bureau of Labor Statistics that provides a broad picture of the labor market in the first full year since the the recession officially ended in June 2009. Meanwhile, the number of working Americans shrank by 1.6 million, and the percent of the population who worked or looked for work -- the labor force -- declined to 66.5 percent from 67.4 percent.

The shrinking labor force, economists say, is one of the most troubling and enduring features of the post-recession years. Troubling, but not surprising.

"People's discouragement in the job market is part psychological, but it's also very much reality-based," said Carl E. Van Horn, a labor economist at Rutgers University who studies the effects of long-term joblessness. His research has shown that, he said, "People are diligent job seekers. But when they are rejected repeatedly, what is the rational response? One is: I can't get a job so I'm going to stop looking."

In a recent working paper examining the impact of the recession on the unemployed, Van Horn found that as of August 2011, only 7 percent of those who lost jobs during the recession "made it back" to where they were, before job loss. Meanwhile, 36 percent said they were either "devastated," or "totally wrecked" by the recession. And it is not only the unemployed who reported major losses.

"You can be employed and be in really bad shape, as we know," Van Horn added. "They're the working poor."

Van Horn's research fits in with the picture painted in Thursday's report: while some working Americans have recovered, many -- both those employed and those out of work -- have not. When the labor market is this weak, workers have less bargaining power, and wages stagnate. And most economists don't see this picture changing.

The trend continues to be reflected in monthly unemployment reports. Last month, the economy added 120,000 jobs and the unemployment rate dipped to 8.8 percent from 9 -- but over half of that drop came from more labor force dropouts.

"I see more clouds than I see sunlight," Van Horn said.