Jobless Recoveries

Why have jobless recoveries occurred in the last 3 recessions (90-92; 00-02; 07-09 Currently ongoing) instead of the typical recovery which included immediate job growth at the turn of the business cycle?  The reasons are twofold in my view: Credit and Technological Innovation.

Credit expansion happened to coincide with our first jobless recovery in the 90s.  Since then the American Consumer was almost synonymous with the Credit Card.   Increased demand creates jobs and more spending, however most spending was on the back of credit, not an actual increase in income.  We were spending money we didn’t have.  This demand was fake.  It was pulled in from the future and thus I refer to it as "credit-induced" demand.  It is not a demand for necessities, but instead for discretionary spending which would be quickly curtailed upon any arrival of recession.  Since this demand is not real, upon the end of the recession, real demand would come back while “credit-induced” demand would return later on, usually when are assets were growing again.  Since the 90s, our job market has continually adapted to real + “credit-induced” demand.   

Technological innovation has made our society advance in ways that would have seemed ludicrous even 25 years ago.  But at the same time, it has reduced companies reliance on having a large workforce and has instead increased productivity greatly, thereby needing fewer workers to complete a same level of output.  We just heard that productivity was the highest it’s been in years.  Technology reduces the need for work hours (jobs) to get the same amount done.  A simple example would be the use of a calculator. Completing a long-division problem would take 5-10 min depending on the complexity of the problem and the person’s math skills, with a calculator, in less than 5 seconds. Technology reduces the amount of work hours needed to complete the same task. With this reduced demand for work hours, we find ourselves with an economy that can do more with less.

These two factors I believe are the main culprits of our jobless recoveries. Their arrival to the mainstream of economic life coincided with the first jobless recoveries. We have yet to experience an old fashion recovery of immediate job growth since the advent of these two factors.

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2 Responses to Jobless Recoveries

  1. Pingback: The Bull/Bear Recap (9/3/2010) « RCS Investments

  2. That’s exactly right. That’s why we need to switch to binary economics. http://just3rdway.blogspot.com/2010/08/cesjs-orientation-in-brief.html

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