Reasons for Jobless Recoveries

[phk]

Because productivity growth (through either technological advancements or globalization (or both together in tandem, like the outsourcing of customer service jobs to Bangalore, India)) more or less is able to keep pace with output growth.

In the early 2000s, we basically had a jobless recovery because productivity grew at like 3% to 4% per year until 2004 (which was faster than the corresponding growth in output). There are many hypotheses for this, one that I agree with most is that most of the investments in computer and information technology were actually paying dividends at a lagged pace since there likely was a huge increase in potential productivity resulting from the massive increase in corporate investment and spending in late 1999.

When output growth finally exceeded productivity growth, we actually started seeing jobs created in Q1 2004.

Here is a general metric.

• Output Growth > Productivity Growth should imply job creation is occurring or will occur (and is positive).
• Output Growth = Productivity Growth should imply a wash in terms of the substitution and scale effects.
• Output Growth < Productivity Growth should imply that job creation is negative or could possibly be staying at zero.

Intuition is that as output is increasing, if productivity can keep pace with it, the existing labor force is adequate enough and additional hiring may actually cause overproduction.

[phk]

That makes sense theoretically, but it does not fully explain the original poster's question; if fast productivity growth was necessarily a cause of 'jobless recoveries'; or rather, a permanent sub-job (i.e., subpar jobs) economy, then we would have expected high unemployment during expansion that had high productivity growth. As we know this is not true. In the World Economy Between the Wars, productivity growth for 1950-73 is listed as 4.77 for Western Europe, 2.77 for the United States, and 7.74 for Japan, compared to 1.56, 2.48, and 1.80 respectively for 1913-1950, when unemployment was much higher.

I think it may be the changing nature of productivity from earlier recoveries to modern recoveries.

I think around the 1970s, technological improvements (and additional capital investments) complemented labor, so as firms could scale up production they could employ both capital and labor in increasing amounts.

While modern-day, technological improvements we see that technology (coupled with globalization, as mentioned above) can outright substitute for labor in many cases.

[phk]

That makes sense theoretically, but it does not fully explain the original poster's question; if fast productivity growth was necessarily a cause of 'jobless recoveries'; or rather, a permanent sub-job (i.e., subpar jobs) economy, then we would have expected high unemployment during expansion that had high productivity growth. As we know this is not true. In the World Economy Between the Wars, productivity growth for 1950-73 is listed as 4.77 for Western Europe, 2.77 for the United States, and 7.74 for Japan, compared to 1.56, 2.48, and 1.80 respectively for 1913-1950, when unemployment was much higher.

I think it may be the changing nature of productivity from earlier recoveries to modern recoveries.

I think around the 1970s, technological improvements (and additional capital investments) complemented labor, so as firms could scale up production they could employ both capital and labor in increasing amounts.

While modern-day, technological improvements we see that technology (coupled with globalization, as mentioned above) can outright substitute for labor in many cases.

Interesting, and a plausible explanation. What technological improvements complemented labor before the 1970's and now substitute for labor?

An everyday example that I see here in San Diego is in grocery stores and some fast food restaurants.

When checkout aisles and cash registers were being installed, you needed 1 person to use each new cash register machine that you had invested in. Near perfect complements

While now, many grocery stores here are installing automated robotic cash registers. They normally have 1 person supervising 4 cash registers per store. Somewhat complements, but more substitutable.

Even with the internet and in upper-tier industries I'v heard of Indian doctors reading X-Ray's and Indian Accountants doing tax returns. Near perfect substitutes.

I basically see productivity boosting mechanisms as doing one of two things (or maybe a combination thereof).

1.) Complementing human tasks.
2.) Substituting human tasks.

In fact its really what I attribute to the changing nature of the economy from being agricultural to manufacturing to services.

[phk]

Too much wealth concentrated in the hands of too few people. How many cars do expect Paris Hilton to go out and buy?

How come all growth has to be consumption driven? Why not investment?

[phk]

Too much wealth concentrated in the hands of too few people. How many cars do expect Paris Hilton to go out and buy?

How come all growth has to be consumption driven? Why not investment?

The ultimate goal of economy is consumption, is it not?  Even investment is based upon the premise of future consumption.

True, investments in capital goods does increase the demand for labor (though maybe not so much these days).

One of the most important things a society needs is to have an entrepreneurial spirit (at least the upper tier).

[phk]

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http://econlog.econlib.org/archives/2009/12/another_recalcu.html

[phk]

Even more...

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More stuff made by fewer people.

[phk]

Just had to bump this thread in light of a new post by Prof. Hamilton at UCSD.

Warning: A lot more mundane than you had originally thought.

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Link to Feldstein paper: http://www.jstor.org/pss/1830437