What If Companies Don’t Hire People Back?

It is normal for businesses to hire people back after a recession. The improvement in employment usually lags GDP recovery, but the trend is part of a normal cycle that comes at the end of an economic downturn.

The current recession has been so brutal that a number of normal trends may not apply.

The Wall Street Journal reports “According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began.” The study was conducted by Watson Wyatt this month and covered 179 companies.

The economy will suffer two body blows if the information is accurate. Unemployment is supposed to top 10% by the end of this year and could remain in double digits for much of 2010. Economists hope that the stimulus package and the normal rebound in business and consumer spending that cause a rebound help drive improved employment. The damage from this downturn may be great enough that many businesses elect to get by with less while they take what may be years to rebuild their fortunes. That, in turn, may lead to a permanent elimination of some jobs.

There are a number of reasons that this recession will not end as quickly as optimists expect or that a recovery will be nothing more than a 1% to 2% GDP improvement that goes on for the next few years. That would be quite different from the 4% to 5% GDP improvement that the Administration is forecasting for 2010 and the years beyond. It would almost certainly cause a widening deficit because there will be fewer and fewer people to tax as a way to offset government spending, much of it being done in the name of rebuilding the job base.

A lack of sharp GDP increases and an unemployment rate that could stay above 9% for a number of quarters may be labeled a recovery, but it is simply stagnation which is no recovery at all.

Douglas A. McIntyre