Saturday, February 13, 2010

What Is Wrong With the Job Market and How to Fix It Mark Zandi

GDP (PPP) Per Capita based on 2008 estimates h...Image via Wikipedia

The Great Recession ended last summer, as the nation’s GDP began expanding again, but this growth has not been sufficient to stem the loss of jobs—now more than 8 million and counting—or the rising unemployment rate that now sits in the double digits.1 The job market is arguably as bad as it has been since the Great Depression, with nearly every industry, occupation, and region of the country suffering from weak labor demand. Layoffs have abated since the financial panic of a year ago, but the number of forced separations remains uncomfortably high. Even worse, hiring and job creation remain dormant.

Great DepressionImage via Wikipedia

Great Depression: man dressed in worn coat lyi...Image via Wikipedia

The struggling job market is the most serious threat to the fledgling economic recovery. In a typical business cycle, recession occurs when consumer and business demand is undermined by a shock such as a surge in oil prices, a stock market crash, or—as in the current cycle—the bursting of a house price bubble. Businesses respond by slashing investment and payrolls to cut costs and stabilize profits. As they do, investors, who had driven down stock prices leading up to the recession, now bid prices up. With better profit margins and higher stock prices, businesses stop cutting and recession gives way to recovery. A self-sustaining expansion takes hold when businesses feel comfortable enough to invest and hire. In the current business cycle, profits and stock prices have risen, businesses have stopped cutting, and recovery has begun. But because employers have yet to resume hiring, expansion remains elusive.


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