I’ve often discussed how the three industries that I refer to as the “housing bubble beneficiary sectors” took the brunt of the recessionary job losses. In this post, I have updated some graphs showing the enormous degree to which this is the case.
The bubble beneficiary sectors, so named because they grew like weeds as a result of the housing boom, are: construction, finance (which includes real estate transactions), and retail (not directly related to housing like the other two, but a bubble beneficiary nonetheless as a result of vigorous home equity-financed consumer spending). In the graphs below, I have grouped these three sectors together as the “Housing Bubble Sectors” and charted the change in their size alongside that of the non-bubble private sector industries and government.
I took these graphs all the way back to the beginning of 2007 because the bubble sectors started to deflate alongside the housing bubble even before the recession officially began in December of that year. In order to avoid seasonality problems, I started and ended the graphs on the same month (January 2007 through January 2012).
This first graph shows the number of jobs lost in each of these three categories:
In the five years since January 2007, the non-bubble private sector has lost 5,400 jobs, and government employment has actually risen by 9,600 jobs. The housing bubble sectors, in contrast, lost 62,700 jobs.
Since employment actually rose in aggregate between the government and non-bubble private sector categories, this means that the bubble sectors accounted for over 100 percent of the decline in San Diego employment since that time.
Housing bubble sector jobs accounted for less than 25 percent of San Diego employment as of January 2007, so in order for the bubble sectors to cause all the region’s job losses, they had to take a huge hit in terms of size. This is represented in the next graph, which shows the percent change in size in each of the three employment categories:
Since our starting point at the beginning of 2007, government employment grew by 3.5 percent and the non-bubble private sector shrank by .7 percent. The bubble sector industries — construction, finance/real estate, and retail — fell between them by a brutal 19.8 percent.
The reason why we are nowhere near getting back to 2007 levels of employment is that those housing bubble beneficiary jobs are not coming back. They were created during an unsustainable frenzy of home building, real estate transactions, mortgage borrowing, and debt-financed overconsumption. The construction, retail, and finance sectors grew to sizes that were far too large to be supported in the absence of a housing bubble.
Those excess jobs are gone for good, now that the bubble is no longer with us. They never should have existed to begin with. We would have been far better off if all the labor and resources that were squandered on the housing bubble were instead put to uses that could have generated a sustainable increase in society’s long-term prosperity. As a bonus, we would have avoided a big crash, too.
And that’s why bubbles are bad.