Summary of The Lasting Effects of the Great Recession

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The Lasting Effects of the Great Recession summary
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The Federal Reserve monitors the US jobless rate to gauge economic recovery, but that measure fails to account for the “six million missing workers” who have dropped out of the US workforce as a result of the recession. Ignoring this discrepancy implies “settling for a new normal.” Economists Michael Greenstone and Adam Looney have coined an innovative, provocative metric to calculate recovery that they call the “jobs gap”; alas, the US might not fill the gap until 2021. getAbstract recommends the thesis to all US economy-watchers.

In this summary, you will learn

  • Why the current way of measuring the US unemployment rate is flawed,
  • How the Great Recession has led six million people to drop out of the labor market, and
  • Why ignoring important changes in population trends and labor force participation risks creating a “new normal” that distorts the true economic picture.
 

About the Authors

Michael Greenstone is a professor of environmental economics at MIT. Adam Looney is a senior economics fellow at the Brookings Institution.

 

Summary

Years after the Great Recession officially ended, America has not yet achieved a full economic recovery. The unemployment rate has fallen month by month since August 2012, but millions are still jobless, while the proportion of working Americans relative to the population as a whole has remained constant at about 58.6%. The Federal Reserve has promised to re-evaluate its interest rate policy when the unemployment rate drops to 6.5%. The US economy will reach that milestone by the end of 2014 if it creates jobs at 169,000 per month – the pace it achieved in August 2013. However, using the jobless rate, as measured by the Bureau of Labor Statistics (BLS), to gauge economic recovery is a flawed technique; it calculates only the “extent to which those looking for work can find a job,” but it ignores the fact that the size of 2013’s workforce has fallen short of 2009’s BLS estimates by some six million workers. This discrepancy accounts for those who have become discouraged by the US jobs market: the 1.9 million fewer foreigners who chose not to immigrate to the US due to its bleak economic outlook and the 4.7 million US workers who dropped out of the workforce or remained in education. Focusing on the jobless rate as a metric of economic recovery risks creating a “new normal.”


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