Why Bubbles Are Bad

Submitted by Rich Toscano on April 1, 2012 - 2:15pm
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:

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Submitted by ocrenter on April 3, 2012 - 12:03pm.

Rich, I wonder if the number is actually worse than the near 20% drop. Afterall, realtors are typically self-employed. A realtor with a single sale in a year is still technically generating income and thus not unemployed, right? Same goes with contractors and sub-contractors. Any way to look into the severity of underemployment of the realtor/contractor fields?

Submitted by Rich Toscano on April 3, 2012 - 4:30pm.

Hi ocr -- Well, this is the "establishment" survey of employers, so self-employed people don't actually show up in this one. That said, behind the scenes what you are describing could certainly have been happening, especially among realtors (since I suspect they are more likely to be self-employed than most industries are).

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