New Business November 25, 2009, 1:58PM EST

The Slow Road to Jobs

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Slower growth only partly explains the shift toward jobless recoveries. Goldman Sachs (GS) senior economist Ed McKelvey argues that over the last decade globalization and deregulation have forced companies to focus far more on controlling costs to remain competitive in world markets. Sharply higher productivity is allowing companies to get far more out of the workers they have, while factory automation is wiping out assembly line work and information technology is making many white- and pink-collar jobs extraneous. Meanwhile, companies are moving other operations abroad to take advantage of cheap labor in places like China and India. Such pressures from globalization are only increasing. "With most of the motivations and mechanisms for the jobless recovery still in place, we see no reason why most firms would behave differently this time around," McKelvey wrote in a recent note to clients.

In theory, American workers should be able to shift gears and perform higher-value-added work at home, and some have. But many Americans aren't equipped for the jobs of the future. A telling sign of the mismatch between workers' skills and employers' needs is that according to the U.S. Bureau of Labor Statistics, there were almost 2.5 million job openings in September that employers were actively trying to fill. While that was down from a peak of 4.8 million in 2007, it was still a stunningly high number considering that there were over 15 million people unemployed that month. Julian L. Alssid, executive director of the Workforce Strategy Center, says that schools, including many community colleges, still aren't producing graduates with the kinds of skills that employers demand.

The weak labor market has left many workers far more idle than they'd like. That means companies have plenty of room to boost hours for part-timers before they need to add more people to the payroll. In a Nov. 16 speech, Federal Reserve Chairman Ben S. Bernanke pointed out that the number of part-time workers who want a full-time job but cannot get one has more than doubled since the recession began. The average workweek for production and nonsupervisory employees has fallen to 33 hours, the lowest level of the postwar period. "The best thing we can say about the labor market right now is that it may be getting worse more slowly," Bernanke added.

Which leads to another key reason why unemployment is likely to rise even as layoffs fade from the picture: New hiring will probably remain sluggish. That may seem an obvious point, but Michael Feroli, an economist with JPMorgan Chase, (JPM) points out that the recent jobless recoveries didn't occur because layoffs continued longer than during a traditional recession. A far more critical factor was that businesses waited longer to start hiring again than had historically been the case.

It all adds up to an enormous economic and political challenge for President Obama and his advisers—and one for which they have only limited ammunition. Count on the President to keep reminding everyone how much worse things would have been without the stimulus and the bailout of the banks. While there's talk of boosting infrastructure spending and offering tax credits to employers who create new jobs, the soaring deficit is likely to prevent ambitious new programs from being adopted. "There aren't a lot of easy options," warns Gregory Valliere, chief policy strategist for institutional broker Soleil Securities. "Those that make the most sense will cost a lot of money, which voters have adamantly rejected. So it's hard to see what they can get done." The real question may be whether the summit gives the Administration and its congressional allies some political breathing room.

With Peter Coy

Sasseen is Washington bureau chief for BusinessWeek.