In short: seven long years. A few months, when everyone was getting all het up about the observation that the rate of increase in the unemployment rate (the second derivative) was decreasing–that is, more and more people were losing jobs, but more and more wasn’t growing as fast as it once was, that struck me as pretty thin gruel. Well, the implications of the first derivative–the change in unemployment–are pretty grim too. Mark Thoma:
How long will it take the unemployment rate to go back down to 5 percent? A rough estimate can be obtained by looking at the rate of decline in the unemployment rate after recent recessions…
Implication: Taking the fastest rate of decline in each case, i.e. .077 percent, .054 percent, and .052 percent, the average rate of decline in the unemployment rate over the last three recessions was .061 percent
Using this figure, and starting from an unemployment rate of 10 percent — the rate that exists today — how long would it take for the unemployment rate to get to 5 percent?
Answer: (10-5)/.061 = 81.8 months, or almost 7 years. (Getting to 6 percent would take 65.5 months, or just short of five-and-a-half years.)
Keep in mind that a five percent decrease in unemployment, once you factor an increasing population, requires around 250,000 net jobs gained every month for seven years. Without a major restructuring of the economy such that capital gains much more velocity (e.g., decreasing the prices of unproductive assets such as housing, and increasing effective wages for the middle and bottom third), I don’t see how we gain a quarter of a million jobs every month.
While I’m on this topic, this is why I can’t stand the phrase ‘stimulus': we do not need a quick pick-me-up. There’s nothing wrong with productive infrastructure expenditures that take a little while to come online–the need for jobs will still be there for years.
An aside: The most rapid decrease Thoma discusses occurred when the U.S. was a creditor, not debtor, nation, and also had net exports. Using values closer to 0.5 seem much more realistic, barring some radical change in the U.S. economy.