August 12, 2003

The Job-Loss Recovery

The Economist notes the large wedge between output growth and employment growth in America today: AMERICA'S economy is now supposedly on the road to recovery, but somebody forgot to tell the labour market. Non-farm payrolls fell by another 44,000 in July. Since the recession began in early 2001, 3.2m jobs have disappeared in the private sector. If the early-1990s' upturn was the jobless recovery, this, says Merrill Lynch, is "the job-loss recovery". In the first 20 months of previous post-war recoveries, employment rose by an average of almost 6%. The latest recession officially ended in November 2001, but in the 20 months since then employment has fallen by almost 1% (see chart). It is true that unemployment fell slightly in July, to 6.2% of the labour force. But the jobless figures are currently misleading, because the labour force has shrunk as discouraged workers have stopped looking for work.

America's GDP growth seems to have picked up (see article), so why are firms still not hiring? One reason is that this has been America's slowest recovery in modern history. Real GDP has increased at an annual pace of only 2.6% since the recession ended.... In addition, faster productivity growth means that fewer new jobs are created for any given increase in output. Productivity growth soared in the second quarter of this year. By hiring more temporary and part-time workers, firms have increased their flexibility and hence productivity; they are reluctant to hire new permanent staff until they are confident about the recovery...

It doesn't seem to get that productivity growth is unlikely to slow soon, and that the wedge between output growth and employment growth will remain high.

Posted by DeLong at August 12, 2003 06:30 PM | TrackBack

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