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Research desk investigates: Was the housing boom responsible for employment growth?

By Dylan Matthews

khadjair asks:

The theory is this: When you take out the added employment from the construction and real estate boom of the 2000s, we actually didn't add many jobs from the end of the dot-com crash. As a side effect, there was also increased spending and employment in the homeland security sector.

Is there any way to break out the "extra" jobs in the construction, real estate and finance sectors (this would include increased employment at Home Depot, Lowes and similar stores) along with lingering U6 unemployment through the 2000s?

khadjair is right; employment grew markedly in the construction and finance sectors over that period. Here's how they changed from 1995 to 2009:


The dot-com crash happened around 2000, and the mortgage crash in 2008, and you can see the effects of both on the graph. However, a look at non-housing related employment reveals that job growth and subsequent losses in other sector occurred too, and in roughly the same pattern. Here's a look at how total and non-housing related employment changed over the same period:


The two track each other very closely, suggesting that housing-related employment wasn't that much of an outlier. Of course, the housing bubble had a broader effect on job growth than merely stimulating the financial and construction sectors, so khadjair's comparison does not give a complete picture. But this does suggest that the unemployment caused by the downturn, and the growth caused by the bubble, affected more than those directly involved in selling the asset the bubble was centered on.

By Ezra Klein  |  July 22, 2010; 1:57 PM ET
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Next: Why businesses aren't hiring in two graphs


When considering this question and analyzing the results of your research, you should have factored in the "wealth effect" of the housing/stock market bubble and its inverse when the bubble burst. Even absent the credit freeze, the flip side of the wealth effect explains why the Great Recession was so abrupt and widespread. Economist Dean Baker is particularly insightful about this. Talk to him.

Posted by: fredbrack | July 22, 2010 6:08 PM | Report abuse

Scott Sumner has a very interesting take on all of this.

I don't know if he's right, but it definitely is a interesting perspective on the financial crisis. Consider also that we had a major banking (S&L) crisis in the late 80's, but no recession.

Posted by: aawiegel | July 22, 2010 9:15 PM | Report abuse

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