Economic Growth No Longer Translates into Job Growth
The National Bureau of Economic Research has released statistics showing that between the fourth quarter of 2007 and the second quarter of 2010, the United States economy lost almost eight million jobs, even as economic activity declined by only 1.3 percent. Similarly, the last half of 2010 saw solid economic growth as indicated by record corporate profits, yet job creation was minimal. With unemployment still hovering around nine percent, the traditional connection between jobs and economic growth is no longer as direct as it has been in the past.
A recent study published by the Political Economy Research Institute at the University of Massachusetts, Amherst suggests the situation is not a fluke. Economists Deepankar Basu of Amherst and Duncan K. Foley of The New School for Social Research noted that “the close relationship between [growth and jobs] that characterized the U.S. economy over the two decades after World War II has been weakening since the mid-1980s.”
The result has been so-called jobless recoveries, and output-less crashes—in which employment lags behind growth during both good times and bad.
Basu and Foley suggest there might be two major factors contributing to this dynamic. The first is globalization, which has resulted in more United States companies shipping jobs overseas. This exportation of labor lets companies increase their output while creating fewer domestic jobs. The second factor is the increasing share the finance, insurance, new home and real estate industries, known collectively as FIRE, are holding in the economy.
Between 1995 and 2009, those three industries accounted for more than one quarter of U.S. GDP growth. But unlike industries such as manufacturing, the FIRE sectors don’t generate many jobs in relation to their contribution to growth.
In a recent interview, Basu said part of the problem is that financial firms’ total contribution to GDP growth may be exaggerated. “As finance and the other FIRE sectors make up an increasing share of the economy, that artificial difference between growth and employment becomes heightened.”
Not everyone agrees. Gus Faucher, the director of macroeconomics at Moody’s Analytics told the Lookout that it now takes longer for economic growth to translate into job gains, especially as employers have become more effective at pushing their existing workforce to boost productivity. But, Faucher believes, “Once you get GDP growth, you will get job growth.”
A recent study published by the Political Economy Research Institute at the University of Massachusetts, Amherst suggests the situation is not a fluke. Economists Deepankar Basu of Amherst and Duncan K. Foley of The New School for Social Research noted that “the close relationship between [growth and jobs] that characterized the U.S. economy over the two decades after World War II has been weakening since the mid-1980s.”
The result has been so-called jobless recoveries, and output-less crashes—in which employment lags behind growth during both good times and bad.
Basu and Foley suggest there might be two major factors contributing to this dynamic. The first is globalization, which has resulted in more United States companies shipping jobs overseas. This exportation of labor lets companies increase their output while creating fewer domestic jobs. The second factor is the increasing share the finance, insurance, new home and real estate industries, known collectively as FIRE, are holding in the economy.
Between 1995 and 2009, those three industries accounted for more than one quarter of U.S. GDP growth. But unlike industries such as manufacturing, the FIRE sectors don’t generate many jobs in relation to their contribution to growth.
In a recent interview, Basu said part of the problem is that financial firms’ total contribution to GDP growth may be exaggerated. “As finance and the other FIRE sectors make up an increasing share of the economy, that artificial difference between growth and employment becomes heightened.”
Not everyone agrees. Gus Faucher, the director of macroeconomics at Moody’s Analytics told the Lookout that it now takes longer for economic growth to translate into job gains, especially as employers have become more effective at pushing their existing workforce to boost productivity. But, Faucher believes, “Once you get GDP growth, you will get job growth.”
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