The initial estimate is that fourth quarter GDP grew at a blistering 5.7% annual pace. With the usual caveats–third quarter GDP estimates started high and then were revised down to a much more modest level–that’s great news.
But man cannot live by GDP alone. I’d argue that the better measure of whether the economy has returned to health is employment–at least, that’s when the improvement starts to translate into improvements in peoples’ real lives. Prolonged unemployment is one of the most crippling things that can afflict people in the modern world.
Yet despite a second consecutive quarter of growth, prolonged unemployment is what we’re stuck with.
The
number of long term unemployed has shot up relative to the people who
find jobs relatively quickly. To some extent, this is normal for a
recession; employment tends to be a lagging indicator, as cautious
employers use existing workers to fill rising production orders, rather
than taking on more employees that they might have to later fire.
But
the last two recessions were characterized by lingering
unemployment–the infamous “jobless recovery” under Clinton and Bush.
One theory for why this is true comes from a paper by Erica Groshen and
Simon Potter, which suggests
that increasingly, America’s unemployment tends to be structural rather
than cyclical. In the old economy, aggregate demand collapsed for some
reason, and workers got laid off, then called back to work when orders
recovered. These days, it is more likely that your job and industry
has gone away entirely.
That has particular implications for a
skilled economy. In 1930s, when FDR was trying to combat mass
long-term unemployment, all he needed to do was create a construction
project; most of the men in the country did some sort of hard physical
labor. It was relatively easy to create jobs that they could fill.
But
what kind of public works projects would absorb mortgage brokers or
mid-level managers? As jobs have gotten more skilled, more human
capital is specific to firms, industry, and job classifications.
That
means it’s going to take longer to transfer those workers into other
areas of the economy. Either they need to search harder to find a job
that meets their skill set, or they need to get new skills. Either
way, that high unemployment number is probably going to be very
stubbornly persistent well into next year.
