Job Market Could Lag Behind for Years, Study Forecasts

Even as the economy shows signs of modest improvement, a new report projects that the job market could take years to recover from the beating it's taken during the recession.

An assessment by an economist and a researcher at the Federal Reserve Bank in Kansas City paints a grim picture of the country's economic future.

Instead of surging back, the authors predict the job market will merely limp along for years to come.

According to their forecast, the unemployment rate will be at 10 percent through 2011. Three years after that, the jobless rate will have dropped only to 8 percent. And a decade from now, that rate will still be floating above 6 percent.

Diane Swonk, an economist with Mesirow Financial, said she tends to agree with such bleak forecasts of jobless recoveries.

"This is the exact debate that's going on in economics today," she said. "Because we have a severe recession, will we get a nice bounce? Or are we stuck in a period of slow, muted recovery, particularly in the labor market?"

In terms of job losses, the current downturn ranks alongside the worst post-war recessions -- the bad old days of the Nixon-Ford era and President Reagan's first two years in office.

Both of those recessions ended with sharp, and uplifting, drops in unemployment within a year's time.

But the authors of the Kansas City report say the milder recessions of 1990-to-1991 and 2001, both followed by recoveries where unemployment continued to rise, better predict what lies ahead.

One trouble spot is the increased use of temp workers and outsourced labor in the last two decades.

The gap between temporarily laid-off workers and permanently laid-off workers has also grown substantially over the years, and it has never been worse than it is now. On top of all that looms the banking crisis -- another wrench in the cogs of economic recovery.

"It used to be that as we're coming out of a recession, companies could go back to the short-term financing that they used to use, to pay payroll. Now they can't do that ... because of the credit market situation that we're in," Swonk said.

The authors of the forecast also studied five major foreign economies. The comparison found that in Spain, Norway, Finland, Sweden and Japan, high unemployment tends to stick around even after a recession has ended if a banking crisis is involved.

FOX News' James Rosen contributed to this report.