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The Recession's Over, So Where's My Job?

July 17th, 2003 | Paula Brantner

You might not have noticed, but the U.S. economic recession is over, it was announced today. Even better news: it ended twenty months ago. According to the National Bureau of Economic Research, an independent research group that tracks the business cycle, the recession was over in November 2001. However, as one economist wryly noted, “Most households, most individuals, will really not believe that it is a recovery until we see that job growth as part of the picture.” (See New York Times article quoting Lynn Reaser, chief economist of Banc of America Capital Management.)

Yesterday, in Cambridge, Massachusetts, a group of seven economists, experts in business cycle dating who have been selected as members of the Business Cycle Dating Committee, met to discuss the U.S. economy and analyze recent economic developments. After analyzing the data available to them, they declared that in the month of November 2001, there was a “trough in business activity,” which “marks the end of the recession that began in March 2001 and the beginning of an expansion.” (See NBER Press Release.) It was a recession that ended just as it started in one sense, as the Committee did not declare until November 2001 that the recession had officially started, dating back to March 2001. (See The Business-Cycle Peak of March 2001.) The recession lasted 8 months, which is slightly less than average for recessions since World War II, according to the Committee.

The Committee is obviously in no rush to make these pronouncements: it wants to stay above the political and economic fray by ensuring its announcements have as little effect on the current economy as possible, and it also wants to ensure that its pronouncements reflect short-term economic fluctuations. As the current chair of the Committee put it, “We don’t take a stand on what’s ahead, but this one is in the record books,” said Robert Hall, an economics professor at Stanford University who has chaired the committee for more than 20 years. (See CBS Marketwatch article.)

So, you might wonder how the economists can declare that the recession ended two years ago when so many people remain unemployed. (I know I did, anyway.) Just last week, the Labor Department announced that the number of Americans seeking unemployment benefits had reached its highest point in more than 20 years, surpassing 3.82 million, the highest level since February 1983. (See Reuters article.) And today, the results of a study in Minnesota were released, where it was concluded that the job market in Minnesota is worse right now than it has been at any time since the nation’s economic downturn began two years ago. (See Minnesota Public Radio article.) The head of the Minnesota study remarks, “We estimate that there are four job vacancies now for every 10 unemployed people. Two years ago at the beginning of the recession, before the employment declines of the past two years, we had a one-to-one-ratio. There were 10 vacancies for every 10 unemployed workers.” Unemployed Minnesotan Ron Corradan, out of work for a year, doesn’t need to see the statistics to declare the current job market “arrogant, with employers expecting “God-like” skills at entry-level working conditions.

So how can the economists ignore the plight of unemployed workers when declaring that our economy is expanding rather than contracting? The current explanation is that this is a “jobless recovery.” No kidding, but why isn’t that an oxymoron? Economists say the economy is expanding due to (and perhaps only due to) the increase in worker productivity. Simply put, fewer workers are working much harder to ensure that businesses are making more money each month.

The Committee used to use as its key monthly indicator of economic strength the payroll employment figure, and designated March 2001 as the beginning of the recession primarily because that was when the number of payroll jobs began to drop, a decline of 2.6 million so far. If the committee were to rely on the same indicator to date the end of the slump, the recession would already have lasted for two years and three months, making it the longest since the vastly more serious downturn that began in 1929 and became the Great Depression. (See Washington Post article.) However, due to the rise in worker productivity — the amount of goods and services produced for each hour worked — companies have been able to increase production while cutting their workforces. (Of course, it’s not like workers have much of a choice these days when it comes to productivity: there’s so much more work to do, given the number of layoffs and stagnant hiring, and a worker who doesn’t accommodate the increased workload can easily be replaced by an unemployed worker who will.)

I’m no economist, but it’s hard to see any good news in this announcement. If the definition of a recession (and the accompanying political will to overcome it) no longer takes into account massive unemployment figures, then employers have little incentive to hire new workers, and will come to take the current level of productivity for granted. If economists and politicians don’t work to encourage business growth coming as a result of increased hiring, rather than viewing the current economic state through the harsh lens of a recession status, then what will it take to trigger a decline in unemployment. My prediction (and fervent hope as well) is that the American public (and especially voters) will take their own definition of a recession with them to the polls next year, rather than accepting the Committee’s rosy view of our economy. For many of us, the recession is alive and well.

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