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Wednesday, April 04, 2012

"The Trend is the Cycle"

David Andolfatto continues to press the case that the downturn in the economy has a large, permanent component:

The Trend is the Cycle, Macromania: Nir Jaimovich (Duke University) and Henry Siu (University of British Columbia) appear to have made a very interesting discovery. Evidently, there appears to be a very strong link between two much talked about phenomena: job polarization and jobless recoveries. ...

What's the bottom line? After separating jobs into various categories:

The conclusion is that jobless recoveries are due entirely to jobless recoveries in routine occupations. In this group, employment never recovers beyond its trough level, nor does it come anywhere near its pre-recession peak. This is in stark contrast to earlier recessions. 

And the prediction is that the routine jobs lost during the recession are gone forever. If so, then we are much closer to a full recovery than most people think and it's time to start considering reversing stimulative policies. However, as noted at the end of the post:

The work here is still very preliminary... Needless to say, it is hardly the last word on the subject.

There is plenty of evidence pointing in the other direction, i.e. plenty of evidence indicating the problem is cyclical and we are nowhere near full recovery.

With so much uncertainty remaining, the advice from Stevenson and Wolfers in a post earlier today about how policymakers should react when they are unsure of how strong the recovery will be is appropriate:

the cost of too little growth far outweighs the cost of too much. If we readily bear the burden of carrying an umbrella when there’s a reasonable chance of getting wet, we should certainly be willing to stimulate the economy when there’s a reasonable risk that doing nothing could yield a jobless generation.

The fact that the costs are asymmetric and what this means for policy -- it should lean against the more costly outcome -- seems strangely absent from policy discussions and decisions.

    Posted by on Wednesday, April 4, 2012 at 12:09 AM in Economics, Unemployment | Permalink  Comments (37)



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