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Monday, July 06, 2015

'The Great Recession and its Aftermath: What Role Do Structural Changes Play?'

Jesse Rothstein at the WCEG:

The Great Recession and its aftermath: What role do structural changes play?: Overview The last seven years have been disastrous for many workers, particularly for lower-wage workers with little education or formal training, but also for some college-educated and higher-skilled workers. One explanation is that lackluster wage growth and, until recently, high unemployment reflect cyclical conditions—a combination of a lack of demand in the U.S. economy and greater sensitivity of workers on the bottom-rungs of the job ladder to changes in the business cycle. A second explanation attributes stagnant wages and employment losses to structural changes in the labor market, including long-term industrial and demographic shifts and policy changes that reduce the incentive to work. This explanation interprets recent trends as the “new normal” and suggests that the U.S. economy will never return to pre-recession labor market conditions unless policies are changed dramatically.
My research, based on a review of extensive data on labor market outcomes since the end of the Great Recession of 2007-2009, finds no basis for concluding that the recent trend of stagnant wages and low employment is the “new normal.” Rather, the data point to continued business cycle weakness as the most important determinant of workers’ outcomes over the past several years. It is only in the past few months that we have started to see data consistent with growing labor market tightness, and even this trend is too new to be confident. The continued stagnation of wages through the end of 2014 implies that, at a minimum, a fair amount of slack remained in the labor market as of that late date. In turn, policies that would promote faster recoveries and encourage aggregate demand during and after recessions remain key policy tools. ...

    Posted by on Monday, July 6, 2015 at 09:25 AM in Economics, Income Distribution, Unemployment | Permalink  Comments (26)


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