Timothy Taylor: Get ready for a jobless recovery

President Obama's one-day "jobs summit" held at the White House last week reflected both the tough reality and the false hopes about job creation.

Here's how Obama described the tough reality: "We knew from the outset of this recession, particularly a recession of this severity and a recession that is spurred on by financial crisis rather than as a consequence of the business cycle, that it would take time for job growth to catch up with economic growth. We all understood that. That's always been the case with recessions."

The unemployment rate in November was a grim 10 percent, hovering near the peaks last seen in November and December 1982, when it was 10.8 percent.

The projected unemployment rates for the next few years are chilling. The most recent Congressional Budget Office forecasts from late last summer predict an unemployment rate of 10.2 percent in 2010 and 9.1 percent in 2011.

Back in the 1970s and 1980s, unemployment used to decline fairly quickly after the end of a recession. In the year after the end of the 1973-75 recession, unemployment dropped by a percentage point. In the year after the 1981-82 recession, unemployment dropped by 2.5 percentage points.

But after the 1990-91 recession, unemployment stayed high for 16 months after the end of the recession; after the 2001 recession, unemployment stayed high for 20 months after the end of the recession.

Why the change? One likely reason is that in recessions of the '70s and '80s, unemployment often took the form of temporary layoffs -- manufacturing or construction workers, say, were laid off during the recession, but then returned to work at the same employer, or at least in the same industry.

International evidence suggests that when a recession is brought on by a financial crisis, the painfully delayed drop in unemployment may be even worse. After a financial crisis, firms are slow to start investing again and households are slow to start buying again. A recent study suggests that when a financial crisis and recession come together, it has often taken 10 years for unemployment to return to its prerecession level.

Of course, the U.S. labor market is not typical. It has historically been far more flexible and friendly to job creation than job markets across Europe and in many other countries. But the ability of the U.S. economy to create jobs is about to be severely tested.

The false hope of Obama's job summit -- and in much job-creation rhetoric these days at the State Capitol -- was in the notion that a few well-targeted government policies can quickly overturn these economic factors and substantially accelerate job growth. The summit was heavy on proposals for government infrastructure projects, subsidies for green energy production, tax breaks for firms that hire, subsidies for small business, and more spending on worker training.

Some of these ideas are better than others, but none are likely to make a perceptible dent in national unemployment rates.

When unemployment rises, government faces a great temptation to try to protect and guarantee jobs in particular visible industries. But when government protects existing workers, it typically puts workers who are seeking jobs at an even greater disadvantage. Ultimately, government subsidies for certain firms or industries always come at the expense of others.

Government can probably do more to help the unemployed make connections with employers. There may even be a case for government providing tax breaks to encourage investment and research and development that are available to all firms.

Ultimately, sustainable and reliable job growth will come from firms that are expanding their sales with new products and services and ideas and that thus have a need to hire.