CHICAGO, June 8 (Reuters) - The U.S. unemployment rate could peak close to 11 percent in the current recession and give way to a “jobless recovery,” according to a team of economists at the San Francisco Federal Reserve Bank.
The low level of temporary lay-offs associated with the current downturn, as well as the high number of workers who have been consigned to part-time work, suggests a possible repeat of 1992, when an economic recovery failed to generate large numbers of new jobs, the economists said in the regional Fed’s latest Economic letter, released on Monday.
“Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism,” the economists said.
The U.S. Department of Labor on Friday said the May jobless rate was 8.9 percent, the highest level since 1983.
At this stage, the economists said, research points to a labor recovery that is slightly weaker than that seen during the 1983 U.S. recession, but slightly stronger than that experienced in 1992.
But if labor markets take a path similar to that seen in 1992, “the unemployment rate could peak close to 11 percent in mid-2010 and remain above 9 percent through the end of 2011,” they said.
Economists Mary Daly, Bart Hobijn and Joyce Kwok said the share of workers laid off temporarily, rather than permanently, is very low in the current recession. By contrast, workers who can only find part-time jobs but would prefer to work full-time is at historic highs.
“Numerous reports tell of workers being furloughed for a set number of days in a month, or asked to work fewer hours each day,” they said. “The reduction in hours has not been trivial.”
After plotting an alternative measure of labor utilization that takes the involuntary part-time work into account, the economists concluded that “the labor market has considerably more slack than the official unemployment rate indicates.”
The alternative measure suggests the level of labor market slack could be higher by the end of 2009 than at any other time in the post-World War Two period, the economists said. (Editing by Leslie Adler)