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Vanishing jobs

WASHINGTON — Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years.

That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists are suggesting.

The words "it's different this time" are always suspect. But economists and policymakers say the job-creating dynamics of previous recoveries can't be counted on now.

Here's why:

  • The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.
  • The job market is caught in a vicious cycle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
  • Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.
  • Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did.

That the recovery in jobs will be long and drawn out is something on which economists and policymakers can basically agree, even as their proposals for remedies vary widely.

Retrenching businesses will be slow in hiring back or replacing workers they laid off. Many of the 7.2 million jobs the economy has shed since the recession began in December 2007 may never come back.

"This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com.

"The collective psyche has changed as a result of what we've been through. And we're going to be different as a result," said Zandi, who is consulted by Democrats in the administration and in Congress, Even before the recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. The severest downturn since the Great Depression has accelerated the process.

After a record four straight losing quarters, the economy did finally grow again in the third quarter. Helped in large part by federal support for spending on cars and homes, the economy grew at an annual rate of 3.5 percent from July through September, the government said Thursday.

Unlike past rebounds that were driven by the spending of everyday Americans, this one appears to hinge on spending by businesses, foreigners and — until it runs out — the government.

It was the first time the economy grew at all since the spring of 2008, and one economist, Brian Bethune of IHS Global Insight, estimated it would have been more like an anemic 1 percent without the popular Cash for Clunkers rebates and an $8,000 tax credit for first-time home buyers.

Yet the unemployment rate is currently at a 26-year high of 9.8 percent — and likely to top 10 percent soon and stay there a while.

"Even if we've turned the corner, we know it's a long way before we're completely recovered," said Christina Romer, chairwoman of the White House Council of Economic Advisers, said in an interview with The Associated Press. "You can't have an unemployment rate of 9.8 percent and not be deeply troubled."

"Many factors are pushing against a quick recovery," said Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute. "Things will come back. But it's going to take a long time. I think we will likely see elevated unemployment at least until 2014." At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

"We will need to grind out this recovery step by step," President Barack Obama said earlier this month.

Obama and congressional Democrats are having a hard time agreeing on how to keep the recovery going and help millions of unemployed workers — short of another round of stimulus spending amid rising voter alarm over soaring federal deficits.

So far, they've been unable to win even a simple three-month extension of unemployment insurance for people in states with jobless rates above 8.5 percent.

The extension easily passed the House earlier this month but is bogged down in the Senate over disputes over which states would get the funds. Hundreds of thousands of people have already lost their benefits or are about to lose them.

But after weeks of political haggling, the Senate agreed Tuesday to take up legislation that would extend the benefits up to 20 more weeks of federal aid.

Also in play was the possibility the bill would be used as a vehicle to extend another policy that has been central to the Obama administration's efforts to revive the economy: an $8,000 tax credit for first-time home buyers.

The vote was 87-13 to bring the bill to the floor. Sixty votes were needed to pass that procedural hurdle.

The legislation would provide 14 weeks in extra financial aid for everyone exhausting their benefits by the end of the year, and another six weeks for those living in 27 states where the unemployment rate is at least 8.5 percent.

The White House credits the president's $787 billion stimulus plan passed in February for keeping job losses from becoming even worse. Since Obama took office in January, the economy has lost 3.4 million jobs.

Republicans argue that the stimulus program has not worked as a job producer and is a waste of tax money. On Wednesday, an Associated Press investigation showed that the government has overstated by thousands the number of stimulus jobs created, raising questions about the key benchmarks the administration uses to determine the program's success.

Meanwhile, the U.S. Chamber of Commerce has launched a multimillion advertising campaign to celebrate small business entrepreneurs — and to argue that further government intervention will not spur permanent job growth.

Chamber leaders called for creation of more than 20 million new private-sector jobs over the next decade, saying it's needed to replace jobs lost in the recession and to keep pace with population growth.

"The government can support a few jobs in the short-run" while free enterprise is the only system that can create 20 million of them, said Thomas Donohue, the chamber president.

To many economists, such a goal seems unreachable given today's altered economic landscape.

"It's a new normal that U.S. growth is going to be anemic on average for years. Right now, the prospect is bleak for anything other than a particularly high unemployment rate and a weak jobs-creating machine," said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment will dip below 7 percent anytime soon.

Many economists consider a jobless rate of 4 to 5 percent as reflecting a "full employment" economy, one in which nearly everyone who wants a job has one. After the 2001 recession the rate climbed to 5.8 percent in 2002 and peaked at 6.3 percent in 2003 before easing back to 4.6 percent for 2006 and 2007.

Will unemployment ever get back to such levels?

"I wouldn't say never. But I do think it's going to be a long time," said Bruce Bartlett, a former Treasury Department economist and the author of the book "The New American Economy: The Failure of Reaganomics and a New Way Forward." "The linkage between growth in the economy and growth in jobs is not what it was. I don't know if it's permanently broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect," said Bartlett.

Job-seekers join a line of hundreds of people at a job fair sponsored by Monster.com in New York in March of this year. Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years, expert says. - AP