Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.

But these raw figures on job losses, bad as they are, actually understate the weakness in world labor markets. If you include partially employed workers and discouraged workers who left the U.S. labor force, for example, the unemployment rate is already 16.5%; even temporary employment is sharply down. Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses as economies suffer from problems of insolvency, not just illiquidity, and as the fiscal stimulus programs are too small and not labor intensive enough. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically.

Moreover, many employers, seeking to “share the pain” of the recession and slow down the rate of layoffs, are now asking workers to accept cuts in both hours and hourly wages. Thus, the total effect of the recession on labor income of jobs, hours and wage reductions is much larger.

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