In recent weeks, new signs of an economic recovery have emerged in the
form of stock market rallies, surprisingly high bank profits, and
better-than-feared official unemployment and economic growth reports.
But accompanying these so-called green shoots is worrying evidence of a
recovery that could be compromised if not cut short altogether by high
levels of unemployment and by a long period of unusually weak and
uneven job creation. Not only is actual unemployment more severe than
is reflected in official measures, it is also concentrated in those
industries and sectors that must grow in order to replace debt-financed
consumption as the United States’ primary economic engine. Indeed, what
is emerging is what economists call a “jobless recovery,” but one in
this case that could perpetuate the crises in the housing and banking
sectors and prevent a sustainable and healthy economic recovery.
The two most recent recessions of 1990-91 and 2001 were each followed
by jobless recoveries: the labor market remained weak and relatively
high unemployment persisted, well after the 18 months that it usually
takes such indicators to rebalance themselves after downturns. Each of
the last two jobless recoveries had progressively slower job growth
than the one preceding it, and recuperation from this current deep
recession looks to have the slowest job growth yet. Projections suggest
that employment levels will remain lower than they were during the
previous business cycle for a long time; in fact, the Federal Reserve
recently predicted that unemployment is unlikely to settle at the
desired “normal” level for another five to six years.
A protracted jobless recovery would have a particularly worrying effect
on U.S. economic prospects because it would not only perpetuate the
housing and banking crisis but complicate the painful deleveraging
process that is just beginning in the household sector. In order to be
able to both pay down debt and maintain consumption levels, households
will need to enjoy a rise in incomes. But a protracted period of weak
job growth and high levels of unemployment will put a damper on wages.
Weak wage growth in turn will slow a recovery in private business
investment, cutting off the traditional pathway to sustained economic
recovery. This promises therefore to be no ordinary jobless recovery,
just as this recession was no ordinary recession. In order to generate
a real sustained economic recovery, the Obama Administration must do
more to create jobs and close the huge job creation deficit.
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