Thursday, February 25, 2010


The weekly report on unemployment claims was disappointing today (The more detailed monthly employment report is available next week). Check out this chart from a post earlier this month on

Employment came back much more quickly during the 9 recessions that happened from 1948 to 1990. In all of those cases employment was restored to the previous peak level in 30 months or less.

The characteristics of employment in the two recessions we've had this past decade are much different.

The 2001 recession, even though it was not a very deep one, still took 46 months or so restore employment to previous levels. The current much deeper recession is still bumping along at employment levels more than 6% below the previous peak after 25 months and counting. Post WWII recession have NEVER been 6% below the previous peak for even 1 month...we have now been there for 4 months in a row.

So something much different is going on.

Keep in mind the last time we had 10%+ unemployment (1981-82) it only took a total a 27 months to fully restore employment to previous levels.

Why have the dynamics changed so much? I think at least part of the problem is a decade of misallocated capital (i.e. from internet stocks to real estate bubbles) but it's likely more complex than that.

No matter what, some fresh thinking to get at the root of this problem seems needed.


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