Arnold Kling  

What is a Modern Recession?

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Robert Hall writes


Unemployment rises not because of a bulge of layoffs but because workers entering job search—from previous jobs, from school, and from home activities—experience unusual difficulty in finding jobs.

Among other things, this means that stories on layoffs, which are treated as very important in the press, are in fact not very significant for the overall economy. Basically, if you have millions of people leaving jobs and taking new jobs each month, a layoff of 10,000 or 15,000 does not mean much to the over unemployment statistics.

For Discussion. Does this model of recessions have policy implications that differ from the standard view that recessions are periods of unusually heavy layoffs?



COMMENTS (4 to date)
Austin writes:

This model would drastically change the role of the federal reserve. Right now, they have to objectives. One - Keep inflation stable. Two - keep unemployment low. If unemployment is neither good nor bad, the federal reserve should chnage it's mission.

jaimito writes:

In a modern economy, unemployment by itself is meaningless. The number of people without a job after unemployment benefits are exhausted is more meaningful.

spencer writes:

The old model of a roughly 4 year business cycle driven largely by inventory liquidation probably does not apply anymore. Over the last 25 years the US has only had 2 recessions and the last was driven by excess investments not excess inventories.

Inventories no longer play the dominate role they use to for several reasons. One, improved technology and just in time means inventories are better controled. Second, inventory adjustment now occurs more and more through changes in imports rather then domestic production -- retailers cut back imports rather then orders to domestic suppliers. Third, tied in with the second is that manufacturing accounts for a much smaller share of total employment so that the secondary impact on income and demand is not as large.

The old term of layoff use to apply to industrial workers temporarilly unemployeed who fully expected to soon return to their old jobs.

That no longer describes the unemployeed as they no longer expect to return to their old jobs. Thus, layoffs is an out of date term that should no longer be used.

Lawrance George Lux writes:

The real implication of Layoffs states they lower the value of Education and Training, while increasing the self-same Educational and Training Costs. Layoffs also have large longterm impact upon Savings, which disappear during Unemployment periods.

It is actually becoming easier to find Work with experience, but harder without it. Experience reduces Training Costs, but lack of longterm development of Labor cadre will mean atrophy in Specialized Skills. Case in Point: How many Doctors would actually make good General Practitioners? No real experience in basic medical aid. lgl

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