How Does This Recession Differ From Other Recessions?

Dave Altig of the Atlanta Federal Reserve reflects on the ways in which the unemployment situation in this economic downturn differs from that in economic downturns of the recent past:

Some analysts have suggested the unemployment benefits policies of the last couple of years may be responsible for abnormally high unemployment rates. Estimates generated by several researchers in the Federal Reserve—here and here, for example—suggest that extended unemployment benefits may have increased the unemployment rate by somewhere between 0.4 and 1.7 percentage points. But even if we accept those numbers and adjust the Beveridge curve by assuming that the number of unemployed would be correspondingly lower without the benefits policy, it’s not clear that the puzzle is resolved

If you tend to believe the higher end of the benefits-bias estimates, no puzzle emerges until the second quarter of 2010. And, of course, some estimates apparently deliver an even larger impact of the extended benefits policy. Let’s call the question unsettled at this point.

The most tempting explanation for the seeming shift in the Beveridge curve relationship (to me, anyway) is a problem with the mismatch between skills required in the jobs that are available and skills possessed by the pool of workers available to take those jobs. The problem with this tempting explanation is that it is not so clear that the usual sort of structural shifts we might point to—for example, only nursing jobs being available to laid-off construction workers—are so obviously an explanation (an issue we explored in a previous macroblog post).

There are any number of reasons that the unemployment situation is as bleak as it is in this recession. On the margins it might be the case, as suggested above, that extending unemployment benefits may deter taking a job that’s far below what an unemployed worker may believe he or she should be seeking, either in compensation or the nature of the work or both. There may also be a mismatch between the skill levels of the workers who are unemployed and those required by employers.

Neither of those explanations explains the very small number of jobs that are being created.

One commenter here has suggested that an economic downturn serves as a good pretext for, as he put it, “culling the herd”, that is, getting rid of less productive or, possibly, more expensive workers. If that’s the case it would suggest that employers have actually been carrying payrolls that are too large for some time. Laying off workers in an economic downturn probably attracts less regulatory scrutiny that it might otherwise and with as many businesses (particularly large businesses) creatures of government to the extent that they are that’s no trivial matter.

I’d like to suggest another way of looking at this recession. Imagine that, rather than being the norms, we treated the two bubbles, the dot-com bubble and the real estate bubble as anomalies. My guess is that there’s an underlying trend in total employment that’s been obscured by those twin anomalies and that absent those two we’ve seen very slow growth and very slow job creation for several decades now.

11 comments… add one
  • Drew Link

    “One commentor” here –

    I’d suggest that the “culling the herd” phenomenon is more directed at less productive vs expensive employees. I suppose I can’t speak for large corporate behavior because I’ve been away from it for so long, and they are generally less well managed……..but a broadly held misconception is that employers are itching to get rid of older workers. Not in my world, anyway.

    Which would you rather have, the 24 yr old sexetary who pleases the eye but tends to miss work days and spends more time thinking about date night than how she comes off on the phone………….or a 5o year old reliable and mature assistant. I know my answer.

    And I’ll take a 55 year old machinist over a 21 year old bar hopping, tail chasing, blurry eyed in the morning machinist anyday. And so it goes. There’s alot to be said for experience and maturity.

    As for your last paragraph, my intuition says you are flat damned right, but I’m not sure I really understand all the variables other than the obvious productivity issue. Perhaps decades of extended employment benefits, workers rights/cost to employ, unwillingness to relocate, skills mismatches and on and on. Its a witches brew, but an undeniable long term trend.

  • I suspect that one of the reasons that the unemployment rate is staying so high is that older workers are falling under the ax more than has been typical in past recessions. For a variety of reasons they keep looking longer than younger workers (who may be more able or more inclined to go back to school) and, consequently, keep the numbers higher than discouraged workers who stop looking and aren’t counted in the unemployment statistics any more.

  • Icepick Link

    I suspect that one of the reasons that the unemployment rate is staying so high is that older workers are falling under the ax more than has been typical in past recessions.

    That would only be true if there were jobs being offered. Less than 100,000 jobs created a month suggests that isn’t really the case.

    Also consider some of the “anamolous” behavior that one can see going on in the employment market. The bag boys seems to be getting older fast, as are the people working in fast food joints. A friend with connections in convenience stores tells me that turnover has dropped dramatically – and when conveniences don’t have retention problems something very strange is happening.

    Also there are the alleged job openings that aren’t – locally we have a fair number of defense contractors. They regularly list job openings that no one gets. Apparently their contracts dictate that they must advertize job openings even if they plan on hiring from within. After a while I realized there was no point in applying to defense contractors – they aren’t really hiring, they’re just shuffling the people they already have.

    The only apparent skill mis-match that I can see is that too many people feel their skill level is such that they shouldn’t have to clean bedpans at minimum wage for a “living”.

  • PD Shaw Link

    I think you need to expand the “culling the herd” theory to include culling unproductive divisions. I heard several months ago that a major manufacturer had shut down it’s “alternative energy source” division. I found this ironic given the emphasis on green jobs, but on further reflection it made sense. This was a division that was doing nothing to assist current profits and since other competitors were likely to be doing the same, there wasn’t a risk of falling behind a competitor.

  • steve Link

    Drew-How about a 55 y/o machinist vs a 45 y/o machinist? The return on that extra 10 years is often pretty minimal in my experience. It is good to have some of those around with maximum experience, but not sure it is worth the down sides.

    The big down side is medical expenses. Again, in my experience, it is in the 50s that we start to see medical expenses really start to go up (excluding child bearing for women). I also see that some people in their mid to late 50s start having trouble coping with learning new skills and ideas. Add in the extra week of vacation that they probably get and it isn’t so clear that they hold an advantage.

    As to Dave’s larger point in his last graf, I have to agree for the most part. AS I have suggested before, I think this started earlier than just two decades ago. I am not sure about all of its origins, though we have discussed some in the past. One of my current areas of interest is the change to a service based economy. I have been looking for an historical precedent to a conversion to a service dominated economy. I dont think I have really found one. Even Rome seems, granted I have not found great records yet, to have been commodity and production centered. The great trading city states dont seem to fit the picture of a service economy either. Maybe what we are seeing is the natural progression in the transition to a service economy. We have gone from an agrarian to an industrial to a service economy in a fairly short time period. Couple that with an economy that functions at a global level more than in the past and we are in uncharted territory.


  • That would only be true if there were jobs being offered. Less than 100,000 jobs created a month suggests that isn’t really the case.

    I don’t think you’re following me, Icepick. Due to the peculiar way in which the unemployment rate is calculated somebody who keeps looking for a job counts among the unemployed while those who stop, whether to go back to school or live in their parents’ basement, don’t.

    That’s one of the reasons that when an older worker is unemployed he or she is more likely to be counter among the long-term unemployed. Older workers keep looking.

  • Icepick Link

    Ah, sorry Dave, I mis-understood your point.

  • steve Link

    Was looking at BEA numbers for something else. Why the big increase in trade deficit numbers starting in the early 80s? Why do they accelerate again in the the late 90s and really go sky high in the 2000s. Is there any common factor?


  • Is there any common factor?

    Sure. China.

    China ended its policy of autarky in 1979. Importing from China really got under way in the early 1980s. In the mid 90s the Chinese pegged the yuan to the dollar. It took a couple of years for that to have its effect.

    After allowing the yuan to rise in value for a couple of years they re-pegged in the 2000s.

  • schaffman Link

    Dave, you make an interesting observation in the last paragraph of your post.
    In the 1970s, women entered the workforce in mass. I’ve yet to see a discussion on how the US economy was effortlessly able to absorb so many additional workers, especially with increasing automation and outsourcing of manufacturing jobs. Perhaps the IT revolution created a “bubble” of new employment niches. Maybe we’re seeing a return to normal conditions. In other words, there are simply too many workers for the available jobs.

  • Drew Link

    “I think you need to expand the “culling the herd” theory to include culling unproductive divisions. I heard several months ago that a major manufacturer had shut down it’s “alternative energy source” division.”

    PD – Its always dangerous to foray too far into things you think you know….but don’t. But I’ll gamble. I’ve noted previouslsy that we have been hit with dozens of requests to finance failing solar deals.
    Aside from the fact that we don’t do venture, I’ve laughed (sorry) at how all these starry eyed ventures have gone splat, and oh, so predictably. I take alot of heat here and OTB for calling out business bullshit from a practical, practionist’s view. But I’m sorry (not really) this isn’t my first rodeo, and I’ve been very successful at applying basic business and investment principles. This alternative energy bullshit is diseconomic, and destined to failure without government subsidy. Screw solar. Screw windmills. Screw electric cars. Very specialized. Not nearly the market potential advertized. Niches, people. Niches. Unless the govment continues to be stupid.

    So PD, do me a favor, I like you, don’t count on continuing subsidy…………..don’t invest. Its about like buying a Lotto ticket.

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