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Structural layoffs stall hiring


Despite the recent speed-up in the current U.S. economic recovery, permanent job cutbacks in many industries may be preventing a rebound in the labor market by forcing job seekers to switch industries and hunt for positions requiring new skills, the Federal Reserve Bank of New York said in a report.

The New York Fed argued that a majority of businesses since the recession of 2001 have eliminated jobs and hesitated to create new positions.

As a result, hiring has not kept pace with the recovering economy, as job hunters have had to spend time changing industries, learning new skills, and possibly relocating.

"The task of finding such jobs, difficult and time-consuming under the best of conditions, is likely to be even more complicated now, when financial market weakness and economic uncertainty prevail," the report published last Thursday said.

Economists associate these "permanent" job cuts with structural shifts in the economy, or lasting changes in the way workers are spread out within the economy. By contrast, in temporary layoffs, managers suspend workers until demand picks up or the business cycle turns favorable.

The study found almost 80 percent of workers since the 2001 recession were in industries affected by structural changes, more than during each of the previous three recessions in the United States.

The study's findings challenge the view that employment is a lagging indicator of economic growth.

"Structural change throws cold water on the view that employment simply lags growth. If you buy into that cyclical view, you are going to be disappointed," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute, a private forecasting group.

Nearly two years after the end of the 2001 recession, job growth continues to sag. The Institute for Supply Management reported on Tuesday that its manufacturing employment index fell to 45.9 in August from 46.1 the prior month, signaling factories are still cutting costs. Meanwhile, the group's overall manufacturing gauge rose to 54.7, the highest since December of last year.