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A new research note by economists at the Federal Reserve Bank of San Francisco explores the likelihood of yet another jobless recovery. The authors note that the relatively low level of temp worker layoffs and high share of involuntary part-time workers (often referred to as underemployment) at this time set the stage for a slow employment recovery on par with those following the early 1990s and 2001 recessions. Indeed, they suggest that the unemployment rate could reach as high as 11 percent next year and persist at 9 percent or higher as late as 2011.

Firms have slashed millions of jobs on net since last fall, and have been particularly aggressive in cutting back on workers' hours-one of the reasons for large increases in involuntary part-time employment and a rapidly-declining average workweek. Once the broader economy does begin to gain momentum and firms have to ramp up production schedules, they will likely make do with their pared back labor forces as long as they can vis-à-vis longer hours before hiring new employees. This process, referred to as "labor hoarding", arises from the fact that businesses bear substantial costs when finding, hiring and training new workers.

So, what should an observer look for if he/she wants to identify a potential turning point in the economy in general and the labor market in particular? The best advice would be to watch for declines in the rate of workers employed part-time for economic reasons (i.e. the underemployed) and increases in hours worked. Improvements in these measures indicate slack in the labor supply is disappearing and payroll growth is likely to follow.

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