The Employment Situation
By Arnold Kling
We will get more news this Friday, but meanwhile Paul Krugman has stirred up a lot of invective, pro and con, with his comment that
Such measures as the length of time it takes laid-off workers to get new jobs continue to indicate the worst job market in 20 years
See, for example, Brad DeLong, speaking for the defense (he in turn links to one of the prosecutors).
I continue to follow the labor market using the capacity utilization measure that I recommended here. This has turned up slightly since July, but it continues to show a significant drop from the peak four years ago. However, it was never so low as to justify a “worst in twenty years” characterization.
To me, the labor market utilization measure indicates that the economy is operating well below capacity. The low rate of inflation corroborates that view.
If there is little improvement in labor demand over the next several months, then I think that Krugman and others have a legitimate (although perhaps overstated) case that the economy is more sluggish than the unemployment rate would suggest. However, if labor market indicators turn up, as I expect will happen, then by summer the issue will be essentially moot.
For Discussion. If the labor market stays soft, what policy recommendations would you make?