Larry Mishel: The recession is not over
Larry Mishel is a labor economist and president of the liberal Economic Policy Institute. Earlier today, I spoke to him about the possible end of the recession and the economic outlook for next year.
There's been a lot of talk about the National Bureau of Economic Research's efforts to date the end of the recession. But you think that's confusing people.
The business press and the economists are talking past people on this. The discussion is over when NBER, which was founded to study the business cycle, will date the end of recession. The purpose of this is a research purpose. An accepted definition of when the recession began and ended helps everyone study business cycles. But when people think of the end of the recession, they're not asking when the economy stopped shrinking and began growing. It's when things are returning to be more normal.
And how would you date the end of the recession, or at least advise people to think about it?
If you believe as I do that a good economy is one where people see broad-based income growth, you have to look at a couple of things. Median family income in 2010 will be lower than in 2009. Unemployment rate increased in that year, and we're at historically low wage growth. And I wouldn't even bet on 2011 being better.
People talk about jobless recoveries -- how our unemployment lingers longer today than it used to, and how they worry it will linger for particularly long this time. What's your view on that?
I accept that there's different behavior in recessions starting in the '90s. Productivity actually accelerates rather than decelerates. In earlier times, productivity actually slowed down. That means that if you have productivity growth of 5 percent, as we did over the last four quarters, then if you're going to create any new jobs, demand and output have to grow by at least 5 percent, because the same people working a year ago can produce 5 percent more. So you need to actually grow very fast to create jobs. But we're seeing slow growth.
What's your forecast, then?
If you want to be pessimistic about prospects for the next year, and I am, I'd point to three things: Forecasters assume productivity growth will come back down rather than remain high. But if it's just 1 percent faster than normal, that's a million-and-a-half jobs we won't get. Secondly, there's a huge issue with the missing labor force. There was a giant decline starting last May, and the fact is that as we create jobs, it's unknown how many of them will return and start looking for work. That means there's no easy translation between job growth and unemployment. And third, we know there's been a dramatic erosion of work hours, and it's not clear to me that the models account for the fact that employers might first increase work hours before they increase jobs. And if you take all that into account, there's a substantial possibility that we may not dent the unemployment rate this year. In fact, if you look at the Goldman Sachs projections, they see unemployment peaking next year.
Whats even more depressing is the response of the political class, who've basically told America you're just going to have to tough it out.
What would you advise them to do?
First, it's not all that hard to provide the basic safety net of unemployment insurance, which not only helps victims but injects money into the economy. But they just voted to extend unemployment insurance for one month! Another is to provide relief to state and local governments. Their retrenchment this summer and fall will cost us roughly a million public and private sector jobs. Third, we should definitely be pursuing the bill introduced by George Miller to assist local governments and community-based organizations in the direct hiring of workers. Fourth, we should not be dillydallying on transportation infrastructure and I think we could do a whole school modernization and rehab program this summer. Fifth, we've already had a debate on a jobs tax credit, but what got passed, the Schumer-Hatch version, was a pretty misguided version. Misguided and small. So that was a missed opportunity. It was a great example of how bipartisan doesn't necessarily mean good policy. And we should not be putting fiscal policy into neutral next year, which the Obama budget does. Unemployment will be at its peak.
April 13, 2010; 4:15 PM ET
Categories: Economy , Interviews
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