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Home Publications Blogs Beat the Press The Recession Really Is Not Good

The Recession Really Is Not Good

Wednesday, 11 August 2010 04:45

David Leonhardt tells readers that the Great Recession has had some silver linings for many workers. High on his list is continued wage growth. This is misleading. All the real wage growth in this downturn occurred in the months of November and December of 2008. This was due to a plunge in the price of oil and other commodities. Since December of 2008 real wages have stagnated.

The wage growth in those two months also followed 6 years of wage stagnation. Essentially, nominal wage growth was eaten up by rising commodity prices during the upturn. These gains were then realized when prices crashed, but it is misleading to imply a pattern of consistent wage growth during the downturn.


The piece also correctly notes that unemployment has been concentrated among a smaller segment of the workforce than was true in the 1981-82 recession. This is a direct implication of the high levels of long-term unemployment. However, it is also worth noting that part of the reason that unemployment is more concentrated is that the workforce is much older today.

In the 1981-82 recession the baby boom cohort was between ages 17 and 36, years when workers change jobs frequently. At present, they are between the ages of 46 and 64, years in which workers infrequently change jobs. This means that much of the reason for the greater concentration of unemployment may be due to a change in the workforce rather than the demand side of the market.

Comments (5)Add Comment
written by izzatzo, August 11, 2010 7:02
Recessions are like Calvinist religion, they're good for you because they're bad for you. Just because things aren't going well doesn't mean it's not your fault. It is. You caused it by some past action, and not paying for it later is like stealing from others to subsidize a greedy life of overconsumption.

Think of the deep recession as a colon cleaning treatment inspired by divine intervention, ridding the economy of waste and inefficiency built up and pushed forward by overeating during the bubble. It has to go somewhere, and far wiser to deal with the lumps now than allow constipation to choke off new growth and recovery.

Wages aren't really stagnant. The problem is overconsumption. Take an enema and get over it.
written by Mark, August 11, 2010 8:56
Thanks Dean. I was puzzled about what Leonhardt said about wage growth. You explanation of the older workforce was also helpful.
written by skeptonomist, August 11, 2010 9:18
The real wages of "rank-and-file" (factory) workers since 1914 are plotted here:


For those who still have jobs the fact that wages are not declining is (relatively) good, but it indicates that employment choices may have been extending unemployment (better if they had cut hours rather than employees, as Dean has suggested).

Leonhardt's comparison with the recessions of the 70's and 80's is silly because wages were steeply declining during the whole 20-year period from the early 70's to the early 90's, not just during recessions. Wages are doing better now than during that period, but that's not saying much. The decline during that period was not due to inflation - there was also inflation during the 40's and 50's.

Real wages declined steeply during the years 1929-1933 despite deflation, contrary to what Leonhardt seems to think.
It's even worse that that...
written by dcdan, August 11, 2010 2:31
5% of our workforce is out of work. Thus the demoninator in Wages / Workers has been reduced from about 95% of the workforce to 90% of the workforce.

Well, I would be shocked if the laid off 5% were of average or above income levels. If you are retaining the high wage workers, and average wages haven't increased (despite the decrease in the denumerator)...

So, wages have fallen (in real terms) or hours worked have fallen enough to offset the low-wage bias in layoffs/job losses.
Bubble economist stuck in bubbles
written by scott, August 12, 2010 6:40
Real wages have stagnated for the bottom 80% for 30 yrs. Further, where are prices falling??? This is delusional. Insurance falling? Electricity? Water? Food? Gas? based on what basis. No, gas isn't $4/gallon, but it shouldn't be as high as it is, based on simple supply and demand.

Further, you miss how so much of the stimulus went to big banks, from our pockets, to raise commodities prices, from our pockets.

Oh yeah, I know we don't measure the cost rates of the stuff that everyone uses and buys, those are too volatile right. Look at what a substantial % of household budgets spend their money on, those too volatile goods. This is a total absurdity.

Have you eaten lunch in a restaurant? Prices there have doubled in 8 yrs. It is nearly impossible to find lunch for $5. The tab at McDonalds has doubled for the same food.

But, you probably don't know that. I don't know if you eat in the Faculty Cafeteria or what but you are totally clueless as to what is really happening. Some prices are falling, but these are in non-essential goods/services. What we all use, need is rising precipitously. That comprises nearly all of my budget, I imagine you hardly think about these expenses.

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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.