Monday, March 30, 2009

Oregon's Recessions: A History

Thank you to Christian Kaylor, State Workforce Analyst, for allowing us to reprint his article originally posted 3/23/09 on the Oregon Employment Department's website.

The past, to quote Shakespeare, is prologue. There have been three recessions in the past 30 years. The 1980s and the 1990s each had their own recessions. Now Oregon, along with the U.S. and global economy, is in the grip of the second recession of this decade.

There are short recessions and prolonged recessions, mild recessions, severe recessions and, in the worst case scenario, economic depressions. But just how bad is it? Are we worse off than other areas? How are we different? And most importantly, when will it finally be over?

Looking back at previous Oregon recessions and what made each recession special gives us some insight into what we might expect for the current downturn.

What Recessions Look Like

There's no official definition of what a recession is in Oregon. However, there were at least nine periods of steady, prolonged job loss in Oregon since the end of World War II. These are times when job loss is spread across multiple industries and places in the state. Those months, or even years, when tens of thousands of jobs disappear are each unique but have enough commonalities to teach us what to expect.

During the 1960s and '70s there were three brief but severe recessions in Oregon. Employment in Oregon typically declined for about six months, then regained most or all of those jobs in the next six months. Though short, these "shock recessions" would cause 7 to 12 percent of all jobs to disappear relatively quickly. Typically, those jobs would reappear in the next six months and the economy would enjoy healthy growth again. The three most recent recessions, in the 1980s, 1990s, and early this decade, tended to be much longer lasting.

1979 to 1983 Recession: The Worst of Times

The most significant recession in Oregon and the U.S. in the last 70 years was the first three years of the 1980s. From November 1979 until December 1982, the state lost about 131,000 jobs, equivalent to one in eight jobs. The recovery took four years. It wasn't until December 1986 that the lost jobs were regained. As a result, Oregon saw it's highest unemployment rates on record. Unemployment rates stayed in the double digits for more than two years, peaking at 12 percent in late 1982.
The timber industry dominated Oregon's economic landscape for decades. In 1979, 40 percent of all manufacturing workers were employed in the lumber and paper industries. During the recession, the industry lost about one in three jobs. Most industries saw more moderate job loss, though the construction industry lost about half of its employment. Every industry would recover the lost jobs through the 1980s, except for the timber industry, which would never again be as prominent a part of Oregon's economy.

In the 10 years previous to the 1980-1983 recession, Oregon's population grew by a whopping 26 percent. As the jobs disappeared, Oregon saw a rare sustained population decline as 65,000 people left the state in 1982 and 1983. With the exception of 1985, Oregon has not seen its population decline since then, even through three more recessions.

1991 Recession

For Oregon, 1991 was a mild recession. But even that had a noticeable effect on the economy. In 1991, Oregon lost just 1.7 percent of employment, while the U.S. lost 1.5 percent. The following year, Oregon's economy enjoyed moderate growth while the U.S. had almost no job growth. The state's unemployment rate rose to a moderate 7.5 percent in early 1992, comparable to the U.S. rate at the time, but well below the 9.9 percent in California at the end of 1992.

California was hit hard by the 1991 recession. While Oregon bounced back in 1992, California continued to lose jobs until the summer of 1993. Military base closures at the end of the Cold War led the Department of Defense to cut employment in California in half during the 1990s.

As California struggled to recover from recession into the mid 1990s, Oregon boomed. Oregon's population increased in the 1990s by more than 20 percent. Most of that population growth, 73 percent in fact, was not from new Oregonians being born but from people moving to Oregon. People came from all over the world to move to Oregon in the 1990s, and California was a major source. Many came to enjoy the high quality of life and inexpensive housing and to work in the new high-tech industry.

2001 Recession

The recession that began in 2001 followed a period of rapid growth. The 1990s were a time of tremendous economic growth for Oregon. In terms of gross domestic product, only two other states grew faster. All industries grew in the 1990s, with the notable exception of wood product manufacturing. But the strongest growth was in a new industry for Oregon, high-tech manufacturing.

The high-tech industry flourished in Oregon after the 1991 recession. From 1992 to 2001, employment in the computer and electronic product manufacturing sector grew by 60 percent to almost 50,000 jobs, paying an average of $88,000 a year, the highest wage of any major industry. Software and systems design employment tripled in Oregon in the 1990s. By the year 2000, Oregon had more jobs per capita in high-tech businesses than any other U.S. state. During the next two years - 2001 and 2002 - almost one in five high-tech manufacturing jobs would disappear, while on the software side, more than one in four jobs were lost.

The downturn in high tech was a global phenomenon that struck Oregon unusually hard. Within Oregon, high tech is disproportionately present in the Portland area, particularly Washington County. Similarly, the Portland Metro area was hardest hit by the 2001-2003 recession, losing 4 percent of all jobs in the three years ending in 2003. Meanwhile the portion of the state excluding the Portland Metro area lost less than 1 percent of employment. For comparison, the U.S. lost 1.8 million jobs, equivalent to 1.4 percent of all jobs.

Oregon: Visit but Don't Stay

During the last recession, in almost every month, from July 2001 through March 2004, Oregon had the highest unemployment rate of all fifty states, peaking out at 8.5 percent in June 2003. Once again, at the beginning of 2009, Oregon has one of the highest unemployment rates in the U.S. Why?

There are two ingredients to a rising unemployment rate: job loss and a growing population. For Oregon, with an above average population growth rate and an economy that's been especially hard hit, a rapidly rising unemployment rate is the natural result. In contrast, several states saw very little population growth in 2008 (e.g., Ohio, New Jersey, and Pennsylvania) or even population loss (e.g., Michigan and Rhode Island).

While unemployed job seekers flee states that experienced significant job loss, Oregon has seen continued strong population growth. In 2008, as the state lost 56,000 jobs, the labor force grew by almost 45,000. That's the fastest pace for labor force growth since 1996, when Oregon's economy was booming.

Strong population growth, in good and bad economic times, has been a hallmark of Oregon for decades. Many are surprised that even as Oregon sheds jobs people would choose to relocate here. The reasons are clear: good climate, high quality of life and low cost of living compared to some other desirable places. Perhaps most importantly, Oregon borders California - the state with the largest population in the U.S. Thirty eight million people live in California; that's 10 times Oregon's population. When California's economy declines, people leave in search of jobs elsewhere. In 2008, California lost over 250,000 jobs. If one-tenth of those quarter million newly unemployed moved to Oregon to look for work, our unemployment rate would increase by more than a full percentage point.

Lessons for 2009?

For Oregon, the past three recessions tended to last longer than those in the 1960s and '70s. Over the decades, Oregon's economy tended to grow less dependent on manufacturing. Those changes to industrial structure have, perhaps, created a less volatile economy. An economy that is less likely to experience economic booms may also take longer to recover from economic busts.

Oregon's relatively small size and high quality of life has driven our faster than average population growth. During rough economic times like these, that population growth feeds high unemployment rates and makes competition for scarce job openings even more intense. However, that same population growth helps provide skilled workers to Oregon's businesses during the good times, allowing us to recover from recession faster.

There's at least one thing that every recession in Oregon has in common - they all ended. The record for the longest recession is the three years that jobs declined in the early 1980s. That period coincided with a severe US recession and a major decline in Oregon's timber economy. Today, Oregon is much less dependent on manufacturing and a major shift in our economic structure is unlikely. We've lost about one in five construction jobs and one in 10 manufacturing jobs in the past two years. That's a very serious hit, but our more diverse economy should allow us to recover those jobs, if not in those same industries.

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