Thursday, July 30, 2009

Economic Policy to ensure job recovery

Industrial/Labor Market Policy – Think Swedish, Steven Attewell, 7/25/09

....The dramatic urgency for emphasizing job growth in public policy is that, as Brad DeLong notes, our economic recoveries are increasingly becoming longer, and slower to reverse damage done to employment – the jobless recovery is becoming the norm, not the exception as you can see from his graph reproduced below:

As I have argued, this trend suggests a larger problem than just the immediate crisis, because jobless recoveries are in a sense, a self-fulfilling prophecy. Because we’re not producing enough jobs in recoveries, our labor market is remaining weak even in good times, which means that there’s virtually no pressure from below for wage increases. As a result, wages have been stagnant and declining, such that the median household income has declined by .6% between 1999 and 2007. This in turn makes consumer spending and confidence, one the main economic engines of the economy, incredibly reliant on credit, making the economy as a whole more vulnerable to sudden fluctuations in credit availability, which makes recessions more likely, and further job losses, and the cycle begins again. ....
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