The Changing Link Between Economic Growth and Jobs
It’s a relationship that economists and policymakers have long perceived as a given: Gross Domestic Product and the unemployment rate tend to move in unison. So during recessions, people lose their jobs, and once output turns around, hiring picks back up. This is known as Okun’s Law, named for economist Arthur Okun, who identified this relationship in the 1960’s.
But in a fascinating presentation, our Polina Vlasenko shows how this relationship is beginning to change, as evidenced by the phenomenon of the post-Great-Recession “jobless recovery.” Or, to be more precise, “a dramatically slower growth in jobs,” said Vlasenko, who is a senior research fellow at AIER.
Between the end of World War II and 1985, we saw a big recovery in GDP in the first year following each of the eight recessions that occurred during this period, she said. But in the recoveries that followed the three recessions since 1985, including the Great Recession, Americans have been a lot slower to find new jobs, she said. It took 77 months after the end of the Great Recession to return to the number of jobs that existed before the recession, she said.
“When GDP falls in a recession, we really lose a lot of jobs,” perhaps because of structural changes in the economy, like the housing bust, she said. And now, when expansion returns, “We don’t make up everything we lost. We just go back to the previous trend and chug along.”
In the last decade, employers have been quicker to hire and fire based on short-term changes in economic conditions, she said.
Vlasenko’s lecture was the first presentation as part of our Summer Speaker Series, which is open the public at our headquarters in Great Barrington, Massachusetts. In case you can’t see it above, you can see a video of the entire presentation here. And you can view the list of upcoming lectures here.
Click here to sign up for the Daily Economy weekly digest!
