LONDON – As the world recovers from the Great Recession, it has become increasingly difficult to discern the true trend of events. On the one hand, we measure recovery by our success in regaining pre-recession levels of growth, output, and employment. On the other hand, there is a disquieting sense that today’s “new normal” may be slower growth and higher levels of unemployment.
So the challenge now is to formulate policies to provide work for all who want it in economies that, as currently organized, may not be able to do so. This issue is much more acute in developed than in developing countries, though interdependence makes it, to some extent, a common problem.
The problem has two aspects. As countries become more prosperous, one would expect their growth rates to slow. In earlier times, growth was fueled by capital scarcity: capital investment attracted a high rate of return, and this created a virtuous circle of saving and investment.
Today, capital in the developed world is abundant; the saving ratio declines as people consume more; and production shifts increasingly to services, where productivity gains are limited. So economic growth – the rise in real incomes – slows. This was already happening before the Great Recession, so generating full-time jobs that pay decent wages was becoming ever more difficult. Hence the growth of casual, discontinuous, part-time jobs.