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Thursday, January 21, 2010

"Prospects for Employment: Evidence from Prior Recoveries"

I missed this when it first came out earlier this month:

Prospects for Employment: Evidence from Prior Recoveries, by Eric S. Rosengren, President, FRB Boston

Unfortunately, the prospects for employment aren't so good:

To sum up my remarks and conclude, I think we can gain insights on this recovery from the experience and trends of the past.  Certainly for economies that experience substantial financial shocks, recovery is normally quite slow.  While inventory rebuilding will likely provide some spark, the strength of underlying demand as government stimulus subsides is an open question. 
The employment picture overall has improved, and the outlook is certainly much brighter than one year ago.  Layoffs are abating, although many firms are not yet ready to do new permanent hiring.  Any significant hiring will likely have to wait while current labor resources are more fully utilized.
So it appears that this recovery will likely experience only a slow improvement in the employment picture, and that the unemployment rate will remain quite elevated during the early phases of the recovery.  GDP growth is expected to be strong enough to produce some employment growth, but that rate of employment expansion will not likely be rapid enough to put a large dent in the unemployment rate.   
Our research and analysis at the Boston Fed suggests that with significant capacity in labor markets, wages and salaries and the ability of businesses to increase prices are all likely to be restrained, resulting in little immediate inflationary pressures.  In my view this should allow for accommodative monetary policy to continue to support the economy until the underlying demand of consumers and businesses becomes self-sustaining.

Here are a few graphs from the presentation:




Have recent political events helped the administration to finally realize that labor markets and the unemployed need more help? I wish I could answer with an enthusiastic, yes, the administration has learned this lesson. But while there's some evidence the administration recognizes both the political and economic importance of addressing the unemployment problem, we'll have to see how hard the administration pushes for proposals that might help create jobs or ease the consequences for those who cannot find employment despite their best efforts. (They could start by pressuring the Senate to quickly take up and act upon the very modest job creation bill the House has already passed. Until the administration at least does that, it's hard to take the proclamations about job creation seriously.)

Update: Paul Krugman:

A Note On The Economy: Quite aside from everything else going on, the economic recovery isn’t looking very good. Unemployment claims are stalled at a level that bodes ill for for the overall employment picture (don’t count on falling unemployment until that number falls well below 400,000). And the 10-year bond rate, which is my personal index of the market’s expectations about recovery, has been falling off again after rising for several weeks.

No reason to panic — but it does look as if this recovery is going to be jobless for quite a while.

Maybe there's no reason to panic, and perhaps it's too late to do much to boost employment at this point (though I think we should still try, and as just noted, we can still give more help through income maintenance and other programs to those who are trying to find work, but are unable to do so, and this will have indirect job creation effects). It's frustrating to watch the slow recovery of labor markets when there's something that could have been done about it if there had been a bit more panic about the coming unemployment problem months ago.

Oh, one more thing. Given the poor outlook for employment, why are we even talking about raising interest rates or balancing the budget now? It's too soon for that.

    Posted by on Thursday, January 21, 2010 at 04:50 PM in Economics, Unemployment | Permalink  Comments (42)


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