Skip to main content

61971b0446f86f380e5d8b22_jo4423c.jpg

The Anatomy of Slow Recovery

What America needs now is not just a recovery in demand, but also structural adjustment. Unfortunately, the market cannot produce a demand recovery rapidly by itself, and it cannot produce structural adjustment at all until a demand recovery is well under way.

BERKELEY – Between 1950 and 1990 – the days of old-fashioned inflation-fighting downturns engineered by the United States Federal Reserve – America’s post-recession unemployment rate would fall on average 32.4% over the course of a year from its initial value toward its natural rate. If the US unemployment rate had started to follow such a path after peaking in the second half of 2009, it would now stand at 8.3%, rather than 8.9%.

Unfortunately, none of the net reduction in the US unemployment rate over the past year came from increases in the employment-to-population ratio; all of it came from declining labor-force participation. Unemployment has fallen from 10.1% over the course of the past 18 months, but the employment-to-population ratio has remained stuck at 58.4%. Perhaps it would be better if unemployed people who could have jobs – and who at full employment would have them – were actively looking for work rather than out of the labor force completely.

If you take that view, between 1950 and 1990, the US employment-to-population ratio would rise an extra 0.227% annually on average for each year that the unemployment rate was above its natural rate. If the US employment-to-population ratio had started to follow such a path after its 2009 peak, the current ratio would be 59.7%, rather than 58.4%. (In that case, we would be experiencing “morning in America,” rather than the current state of economic malaise.)

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/maHBFea;
  1. mallochbrown10_ANDREW MILLIGANAFPGetty Images_boris johnson cow Andrew Milligan/AFP/Getty Images

    Brexit House of Cards

    Mark Malloch-Brown

    Following British Prime Minister Boris Johnson's suspension of Parliament, and an appeals court ruling declaring that act unlawful, the United Kingdom finds itself in a state of political frenzy. With rational decision-making having become all but impossible, any new political agreement that emerges is likely to be both temporary and deeply flawed.

    0
  2. sufi2_getty Images_graph Getty Images

    Could Ultra-Low Interest Rates Be Contractionary?

    Ernest Liu, et al.

    Although low interest rates have traditionally been viewed as positive for economic growth because they encourage businesses to invest in enhancing productivity, this may not be the case. Instead, Ernest Liu, Amir Sufi, and Atif Mian contend, extremely low rates may lead to slower growth by increasing market concentration and thus weakening firms' incentive to boost productivity.

    4

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions