More from Next Year's Analyses
We already know that the number of hours American workers are going to work this year will be at least two percent less than in 2001, when hours worked were some 1.2 percent lower than in 2000. Because the labor force is still growing by about 1 percent per year, labor market slack--the gap between what America's workers would want to work and what they do work--is some five percentage points of the labor force greater this year than it was two years ago, at the peak of the boom.
However, if you look at output, you find that--contrary to the picture painted by hours--the recession is over, and American production is climbing.
The divergence comes from two sources. First, the underlying trend is one of strong economic growth. The 2.5 percent growth in output we expect to see in 2002 relative to 2001 is not enough to reduce the slack in America's economy: actual output is growing at 2.5 percent per year, but potential output is growing even faster. Second, employment is a lagging indicator: at the end of a downturn, businesses typically wait until demand has been strengthening for several quarters and inventories have fallen before beginning to raise overtime and hire more workers.
Posted by DeLong at September 15, 2002 07:26 PM | Trackback