un in usa - America's labour market: Something's not...

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America's labour market Something's not working The recession probably ended months ago but employment has not yet started to recover. Is America’s jobs machine broken? Apr 29th 2010 IN THE summer of 1984, Ronald Reagan declared “morning in America”. Running for re-election after a tumultuous first term during which unemployment rose to a postwar record of 10.8%, the president needed a hopeful message to take to the American people. When Reagan’s television advertisement ran, nearly two years after the official end of recession, unemployment was still high, at about 7.5%. But the president could accurately claim: “Today more men and women will go to work than ever before in our country’s history.” In the spring of 2010, a similar dawn is some way off. Economic recovery probably began ten months ago, but employment has scarcely risen from its trough (see chart 1). About as many Americans are working as in the autumn of 1999—in a population that is larger by 28m. If Barack Obama wants to repeat Reagan’s boast in his own re-election campaign, by which time the recovery will be three years old, the economy will need to add jobs at a rate of more than 3m a year. That has not happened in over a decade. It is well known that America shed jobs at a furious rate as recession took hold. The rise in the unemployment rate between boom and bust, of nearly six percentage points, was the largest since the Depression. Adjusted for the age distribution of the population, the jobless rate hit a postwar high. So did the number of long-term unemployed, reaching 6.5m, or nearly half the total (see chart 2). What is less well understood is that the American jobs machine has stalled badly. Granted, employment has been rising—non-farm payrolls were up by 162,000 in March—and may gain strength in the months ahead as cyclical joblessness falls. But the recovery has not yet brought jobs for the millions of workers idled by recession. This is at odds with what economists refer to as Okun’s law, a rough but empirically regular connection between changes in GDP and changes in unemployment. Over the past 12 months unemployment has not fallen as quickly as economists have come to expect. The hitherto tight link between economic activity and job creation looks disturbingly slack. To see how this has come about, it helps to divide the recession into three phases. In the first, in 2008, workers were laid off rapidly, particularly during the second half of the year. At the same America's labour market: Something's not working | The Economist http://www.economist.com/node/16010303/print 1 of 4 8/19/2010 1:53 PM
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time, both hiring and vacancies plummeted. Most people who lost their jobs during this period had little hope of finding new ones. The second phase began early in 2009. Layoff rates peaked and declined, but firms still had little interest in hiring. Vacancies continued to shrink in the first half of the year, as companies adjusted to falling demand. By the middle of last year, a surprising third phase had started. As the economic weather
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This note was uploaded on 12/06/2010 for the course ECON 4616 taught by Professor Antman during the Fall '08 term at Colorado.

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un in usa - America's labour market: Something's not...

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