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The Non-Mystery of Slow Job Growth

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Tuesday, 17 January 2012 20:31

The Wall Street Journal had a bizarre article about capital investment and robotics to explain the slow job growth in this recovery. There actually is a much simpler explanation, it's called "slow growth."

Productivity growth has averaged close to 2.5 percent since 1995. That means the economy must grow at a 2.5 percent rate just to keep labor demand constant. If it grows slower than this, we expect the demand for labor to fall and the number of jobs to decrease or the average number of hours worked to fall.

Since the recovery began in the summer of 2009 GDP growth has averaged just under 2.5 percent. These means that we should not have expected the economy to create any jobs over this period. In fact, it has added almost 1,500,000. Insofar as there is a mystery, given the weak growth of the economy over the last two and a half years, it is why the economy added so many jobs.

Comments (7)Add Comment
Slow Job Growth Due to Classical Economists
written by Paul, January 17, 2012 10:38
On the advice of classical economists, Pres. Obama has been constantly advocating that the government "tighten its belt" since April, 2009 - at the nadir of the Great Recession.

One of those belt-tightening moves was to freeze government workers' pay and reduce the number of federal employees. Another was to stop helping states balance their budgets which resulted in massive layoffs of state and local workers.

Finally, Obama, in true anti-Keynesian form, tightened mortgage lending standards and eliminated home buyers' tax credits thus causing housing prices to plunge for 5 straight years. So there has been no recovery in the housing market which has always led the recoveries out of past recessions.

Will Obama next propose we go back on the gold standard?
...
written by Beth in OR, January 18, 2012 2:44
I'm a layman. Are these all domestic jobs? Has there been a substantial increase in non-profits? Could some be Internet-based?

The truly small business owners I know have been trying to create jobs when possible.
...
written by S. D. Jeffries, January 18, 2012 8:47
I'm a small business owner, and the only jobs my company has been able to create in the last four years are commission-based jobs for independent contractors. Commission-based employees are responsible for creating their own demand, and some of them are extremely good at it because they have amassed extensive networks over the years that they know how to tap. The ones who aren't good at it don't last long.

This is not the way I want to run my business, and this is not the way my new hires want to work. But neither of us has much choice in the current economic climate.
...
written by joe, January 18, 2012 9:02
what about population growth? productivity growth + population growth would require real gdp growth of 3+% to reduce unemployment. Under Bush, unemployment did not fall until 2004 when real GDP grew 3.5%.
...
written by freebird, January 18, 2012 9:12
Another lay person here with a question about the 2.5%/yr average productivity growth, what fraction of this would you attribute to capital investment and robotics?
Huh?
written by David, January 18, 2012 12:54
Lots of confusing comments on this topic. But this one, c'mon!
Finally, Obama, in true anti-Keynesian form, tightened mortgage lending standards and eliminated home buyers' tax credits thus causing housing prices to plunge for 5 straight years.


Uh, he's only been in office for 3 years. Does Paul really think we're as gullible as he is? What actually caused housing prices to collapse was a failure to honor credit that was awarded based upon super-inflated and irrational expectations of housing prices and the trend of such prices. Bush, Cheney, Greenspan, sycophantic Geithner, Bernanke, these are the criminals, not Obama.
ONLY 3 Years!!!
written by Paul, January 18, 2012 1:35
And still housing prices are falling.

When will Obama be responsible for the current housing collapse - 3 MORE years?

What is the real difference between Romney's "let it hit the bottom" approach to the housing industry and Obama's "just ignore it" approach?
Are you claiming Obama's approach is working David?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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