Monday, July 13, 2009

Job Losses Outpace GDP Decline


Arnold Kling at Atlantic Business has an extremely optimistic post about why he thinks we'll see a quick recovery in the US. Key quote:

1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.

In addition, I would point out that:

2. The stock of automobiles is aging, because hardly any new cars have been bought for the past year.

3. Household formation is falling, because people cannot afford to form new households.

4. The rate of homebuilding is way below the long-term trend.

All of these factors will turn around once economic growth picks up. Firms will find themselves needing to add workers in order to meet demand. People will have pent-up demand to form households and get new cars. Homebuilding will actually start to contribute positively to growth.
Point number one is based on this article by Sudeep Reddy:
In a research note, Carson says job losses in prior downturns have been roughly proportional to the decline in gross domestic product. But in the current recession, the proportion of jobs lost is running about a third greater than the drop in real GDP.
While Reddy's data point is encouraging, Kling doesn't mention what will be driving economic growth going forward? (see bold text)


Post a Comment

Our Deal

The markets are crashing, thousands of people are losing their jobs and the government keeps funneling money into broken banks. This little blog will help explain why this is happening and how we fix it.

I'd like to preface this experiment with a contract between myself and my readers. My promise to you is that I will be civil, non-ideological, well researched and honest. In return, I only ask that you think.

Send questions to:

Quick Search

Recent Comments