Are These Recessions All the Same?
By Arnold Kling
Here are some data on job losses in each recession since 1970 (I grouped together the two recessions in 1980-1982). I look at total losses in nonfarm payroll employment and losses in employment in the durable goods sector. The figures are in thousands. I used the NBER business cycle dates.
Durable goods would include construction materials and household durables, such as refrigerators, so this sector bears the brunt of housing fluctuations. Employment in residential construction by itself is too small to be a dominant factor. Indeed, in the 2007-2009 recession, only 263 thousand jobs were lost in residential construction (almost that many had already been lost between the peak of the housing boom and the start of the overall recession).
Note that in the first three recessions, the durable goods sector accounts for essentially all of the total job losses. In the most recent recessions, it accounts for considerably less. Note, also, that the most recent recessions are the ones during which productivity (as measured) did relatively well and which were followed by jobless recoveries.
So, the essay question, students, is this: has the economy changed in the most recent recessions and, if so, how?
My answer would be that the first three recessions in the table are your father’s recessions, in which excess inventories lead firms to lay off workers, many of whom will be recalled once sales and inventories are back in balance. The PSST interpretation would be that production reached unsustainable levels at the end of the booms, but a lot of the excess could be worked off using temporary layoffs.
The AD-AS story would be that durable goods is the cyclical sector that is affected by AD.
In the most recent recessions, a lot more of what is going on is permanent restructuring. The PSST interpretation would be that many industries took this as an occasion to cut costs and to let technological advances show up as higher productivity.
The AD-AS story is that “Since all sorts of industries are laying off workers, then it must be aggregate demand. Aggregate demand!”
Actually, I do not think that the AS-AD people want to admit that there is any difference between the two sets of recessions. The size of the multiplier can be inferred from the Korean War experience or whatever, because everything else holds constant. Nothing to see here. Move along.