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Thursday, March 29, 2012

"Disentangling the Channels of the 2007-2009 Recession"

According to this, for now and into the foreseeable future, "jobless recoveries will be the norm":

Disentangling the channels of the 2007-2009 recession, by Jim Hamilton: Harvard Professor James Stock and Princeton Professor Mark Watson presented a very interesting paper last week at the Spring 2012 Conference for the Brookings Papers on Economic Activity. Their paper studied similarities and differences between the 2007-2009 recession and other U.S. business cycles.

Stock and Watson characterized the comovements over 1959:Q1-2007:Q3 of 198 different U.S. macroeconomic variables...

Their first question was whether the observed U.S. macroeconomic data continued to track those factors in the same way during the most recent recession and recovery as they had historically. Stock and Watson's answer was, for the most part, yes. ...

But if the Great Recession can be interpreted as normal responses to abnormally large shocks, what about the anemic recovery? Stock and Watson attribute this to a slowdown in trend growth rates... Again quoting from Stock and Watson's paper:

The explanation for this declining trend growth rate which we find the most compelling rests on changes in underlying demographic factors, primarily the plateau over the past decade in the female labor force participation rate (after rising sharply during the 1970s through 1990s) and the aging of the U.S. workforce. Because the net change in mean productivity growth over this period is small, this slower trend growth in employment corresponds directly to slowdown in trend GDP growth. These demographic changes imply continued low or even declining trend growth rates in employment, which in turn imply that future recessions will be deeper, and will have slower recoveries, than historically has been the case. In other words, jobless recoveries will be the norm.

So why are we talking about reducing rather than enhancing social support for the jobless?

    Posted by on Thursday, March 29, 2012 at 12:33 AM in Economics, Unemployment | Permalink  Comments (18)

          


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