Thursday, September 3, 2009

Unemployment and the Great Recession

Considerable debate exists about the scope and depth of this recession in contrast with previous ones in the post-WW II era.

Economists generally agree that what makes this recession particularly noteworthy is the degree of unemployment. Unemployment is not simply resulting from the loss of jobs, but also from the lack of job creation. Simply put, jobs lost are not being replaced with new jobs.

Small businesses are not creating jobs in significant number. Would-be retirees are not vacating jobs due to the decimation of their 401ks (see NYT article on this, "Reluctance to Retire Means Fewer Openings). And state and city governments are cutting jobs. Employers find that worker productivity rises when workers fear for their jobs, making new hiring "unnecessary."

Moreover, detailed analysis of private sector employment since the dot com meltdown reveals that today's unemployment trend began then, but was masked by the housing bubble. Accordingly, Creditwritedowns rights:

"What this data should make plain is that the downturn we are experiencing is really an outgrowth of the recession and jobless recovery of 2001-2003. Only through the extraordinary efforts of Alan Greenspan in inflating a housing bubble to replace the telecom and technology bubble were we able to escape this downturn relatively unscathed."

This interpretation of the data reinforces the argument made by Reich that a new economy has to be created...

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