Recent unemployment numbers have conjured up the fear of a coming new Great Depression. A careful look, however, suggests no economy-wide collapse in employment. In addition, some unemployment  during an economic downturn is actually essential for a stable economic recovery.

The Department of Labor said December 11 that around 573,000 people applied for unemployment insurance payments, up from 515,000 the week earlier. 

While these initial claims seem large, the job loss occurred in a non-farm U.S. workforce of more than 135 million people, with 4.4 million currently collecting unemployment insurance claims. The vast majority of the working population remains employed and earning a living. 

In November 2008, non-farm employment was only 1.4 percent below the level of a year earlier, based on Labor Department data. Even subtracting government jobs from this total, private sector non-farm employment was only down 1.8 percent from the previous year. 

While there has been a decline in employment across much of the economy, it has been far from even. As the table below shows, the highest rates of job loss are clustered in a handful of sectors. At the same time, there have been industries where employment has grown, despite the economic downturn. 

Not surprisingly, the largest job loss has been in residential housing construction, automobile production, and textile manufacturing. The burst of the housing bubble has sent the home construction industry into a nose dive, with 11.4 percent fewer jobs compared to last year. 

Employment in the motor vehicle and parts industry has fallen 14.9 percent over the last year. In the auto dealer retail trade, 9.3 percent fewer people are now employed. Most of this decline has been experienced among the Big Three American automakers. 

The textile mills are employing 13.9 percent fewer workers compared to November of last year. Apparel industry employment has decreased  by 8.9 percent. This primarily is the result of the continuing growth of global competition and the cost-efficiencies foreign suppliers provide.  

With consumers adjusting  their budgets to a post-boom environment, other retail businesses such as electronic and appliance stores, and clothing and department stores have reduced the number of workers they employ. These cuts have been far more modest, in the range of 4 and 5.5 percent compared to last November. 

Other sectors  as the data in the table indicate, have reduced the level of employment from a year earlier only in the range of 1 to 3 percent for the most part. Even in the commercial banking sector employment has declined by only 1 percent, according to the Labor Department’s data over the last year. 

On the other hand, since November of 2007, employment has continued to increase in the oil, gas and coal industries, with employment growing in these sectors in the range of 9.4 to 9.7 percent. This positive employment trend has continued even as energy prices rapidly declined over the last four months. 

Employment also has continued to grow, perhaps not surprisingly, in government and in those industries that rely heavily on various forms of social welfare spending such as health care and education. 

Direct government jobs at the local, state and federal levels have grown between 1 and 1.6 percent over the last year. Employment in educational services went up by 3.6 percent and in health care and related services by 2.9 percent.  

As difficult as it is to experience, unemployment is a necessary and healthy part of an economic recovery process that follows the bursting of the bubbles of an economic boom.

The Federal Reserve followed an extremely aggressive monetary policy over the last five to seven years, creating a huge increase in the money supply that artificially lowered interest rates to practically zero and filled the banks with plenty of cash to lend to both the credit and uncredit worthy, as I detailed in an earlier commentary on “The Financial Bubble was Created by Central Bank Policy." 

The housing and consumer spending booms were bound to end when the inflationary bubbles popped. Investment resources, capital, and portions of the labor force were drawn into employments that could only last for as long as the inflationary boom. 

When the downturn began, it was inevitable that many of the employments created during the boom would begin to disappear. Where the bubbles were biggest is where, inescapably, the greatest amount of employment would be lost. 

The task ahead is to ensure a healthy economic recovery by allowing the market to find correct prices, wages, and asset values. This will enable people to discover what things are  worth in the post-boom era, and where sustainable employments may be found.

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