The slow American economic recovery recently marked an important milestone. In May, the U.S. finally gained back the last of the 8.7 million jobs lost during the recession.
That is great news, but it is probably wise to leave the celebratory champagne on ice a little longer, says Steven Kyle, associate professor at the Charles H. Dyson School of Applied Economics and Management at Cornell University in Ithaca, New York.
Kyle notes that despite steady job gains, there is still a long way to go before the U.S. reaches full employment again. In fact, he describes the recovery as less of a “bounce back” and more of a “trudge back.”
He also laments a “penny-pinching Congress” and decisions to delay infrastructure spending, which he believes have stunted the recovery.
Kyle expands on those thoughts in the following interview.
Employment figures are steadily improving, but you think it is a mistake to celebrate too enthusiastically. Why do you say that?
They are improving, but very slowly compared to previous recessions and compared to what might be possible if we made a concerted effort to stimulate the economy via investment in infrastructure and other necessary areas.
In addition, it is important to remember that though the number of jobs is now back to the previous peak, this ignores not only population growth but the declining labor force participation rate. Many of the lost jobs paid better than the ones that were created, resulting in lower standards of living for many.
So, though I am certainly happy we have made it this far, we are still not doing as well as we could and should be doing.
You say the recovery from the recession is less of a “bounce back” and more of a “trudge back.” Can you explain what you mean?
Seventy-five months to get back to where we started! That is a post-World War II record!
And we haven’t had any really strong growth spurts that would qualify as a “bounce” — just a slow climb out of the pit we found ourselves in after the housing bust.
Why is this recovery different from past recoveries that followed recessions?
This recovery is different in that it follows a credit crash. Most recessions are not of this type, and even those that were did not achieve the magnitude of the slump we are now climbing out of.
After a credit crash, it takes time for borrowers to work their way back to a point where their debt levels are reasonably in line with their incomes. This is particularly difficult when the source of the crash is the housing market, where inventory is notoriously slow to adjust compared to other sectors.
Are there things that government leaders could be doing that might boost the economy?
The most obvious is the fact that roads, bridges, schools, ports and all kinds of infrastructure need to be maintained and replaced. What better time to do it than when interest rates are at zero?
Our penny-pinching Congress seems to imagine that we never will have to invest in our infrastructure! They are wrong, and we are going to end up having to do it when interest rates are higher than they are today. This will make it more expensive to finance, as well as the added expense of delaying needed maintenance.
Every recession in my lifetime — I am 57 — has seen public sector jobs increase. This is a major boost to the economy and helps it to pull out of recession.
During the Obama administration, public sector jobs have decreased by more than 700,000, which is a major drag on the economy. Simply keeping employment levels would have been better than what happened, and the federal government could have achieved this through a combination of maintaining its own payrolls and aiding state and local governments to do the same.
Of course, cutting public sector payrolls has been a major goal of the Republican-controlled House, so perhaps some might regard this as a win. But even they should acknowledge that this “win” — if they think of it that way — came at the cost of prolonging the recession.
How will we know that the American economy finally has turned the corner?
We will know that the labor market has returned to full employment when there starts to be upward pressure on wages and prices. This still hasn’t happened yet and demonstrates that there is still significant slack in the economy.
Even moderately rising wages and prices would also help in another way — they would reduce the real burden of household debt and thereby enable consumers to spend more freely.