A jobless recovery?


Dave Russ sends along a fascinating analysis of our national economic situation, by Gary D. Halbert of InvestorsInsight.com. He points out that GDP has been growing since the 4th quarter of 2001 -- following three straight quarters of GDP shrinkage. The US is, in formal terms, in a recovery.

So why does it still feel like a recession? Unemployment is rising as many industries are in the midst of a massive restructuring in response to rising worker productivity, slow growth at home, and increasing competition from abroad. Technology advances have made it possible to do more with fewer people, foreign competition and slow growth have made it mandatory.

The bottom line is, worker productivity has been growing faster than the overall economy. That has allowed corporate executives to meet increases in demand while still eliminating jobs. This is very unusual.

Worker productivity historically increases in the early stages of a recovery, but this time the mismatch between productivity and overall economic growth is unprecedented. There have been 10 recessions since 1949, including the recession in 2001. In the recoveries following eight of those 10 recessions, demand grew faster than the increase in worker productivity. Usually, demand far outpaced worker productivity. The result: Unemployment actually declined, and more people went back to work following the eight recessions from 1949 to 1982.

However, following the 1991 recession, which was also relatively mild, demand and worker productivity increased at about the same rate. But as noted above, worker productivity has exploded since then. Here are the numbers for the latest recession:

GDP (demand) has expanded at an average annual rate of 2.7% since the 4Q of 2001. Yet during the same period, the productivity of the nation's work force (defined as output per hour of work) has expanded at a much faster rate of 4.2%. End result: higher unemployment.

The unemployment rate isn't anywhere near the peaks reached in the recessions of 1982 and 1992 -- at 6% it's just a bit higher than the 55 year average, according to Halbert. But the profile of the unemployed is changing -- more educated and highly-skilled people are finding themselves out of work.

Educated workers seem especially prone to bouts of long-term unemployment in this downturn. Hilsenrath found that of the 1.9 million workers who have been unemployed for six months or more, one in five is a former executive, professional or manager, according to a study by the National Employment Law Project, a nonprofit advocacy group for the unemployed. Because these workers have specific, often technical skills, it is often harder for them to find a job that matches those skills.

Halbert says the way out is for demand to grow faster than productivity, and he seems to think that 3% growth will start to turn the unemployment numbers around.

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This page contains a single entry by Michael Bates published on June 5, 2003 11:16 PM.

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