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Going social

Rebuilding the US economy and sustaining the recovery Alan B. Krueger Chairman, US Council of Economic Advisers, Executive Office of the President

© Larry Downing/Reuters

The 2000s did not have to be so disappointing. The OECD Labour Force survey indicates that many other industrialised nations had robust job growth over the 2000s even after accounting for differences in industry composition. These data suggest that the slow job growth of the 2000s was not an inevitable feature of globalisation or technological change, as some have argued. Instead, structural differences such as

As the US emerges from the deepest recession since the Great Depression, it is critical to take steps that will lead not only to recovery, but also to more robust economic growth with rising employment and broadly shared income gains. Returning to the pre-crisis state of the economy is not sufficient. The pace of economic growth in the upswing prior to the Great Recession was modest, and the expansion of the 2000s was driven by increasing consumption and wealth from an unsustainable rise in housing prices rather than from rising employment and income; indeed, the share of the population working fell in the US in the years prior to the Great Recession and median family income was stagnant or declining throughout the 2000s. From the start of the decade of the 2000s through November 2007, only 7.4 million jobs were added. Even if job growth had continued at the same pace through 2009, this would have represented the slowest employment growth for a decade in over 60 years (since the Great Depression); the actual record for the decade was much worse, of course, due to the recession that began in December 2007. By contrast, net US payroll job growth was 22.3 million from 1990 to 2000. What these data suggest is that the US had a dismal job creation record in the 2000s—even before the Great Recession began. Poor job growth translated into an increasingly smaller fraction of Americans working. The employment-population

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ratio increased from 62.9% in 1989 to 64.3% in 1999, and then fell in the recession in the early 2000s and never recovered to its previous high. This share stood at 62.9% in November 2007, precisely where it was in 1989. (Today, after the ravages of the Great Recession, it is 58.4%.)

OECD Yearbook 2012 © OECD 2012

The 2000s did not have to be so disappointing. Slow job growth of the 2000s was not an inevitable feature of globalisation or technological change, as some have argued lagging educational attainment, increasing inequality, and an expensive and inefficient health care system may have played a role. One large fixed employment cost has been employer-provided health insurance. In the long run, health insurance costs are probably shifted to workers in the form of lower pay, but in the short run health care costs may be borne partially by employers, and unnecessary administrative costs of providing health insurance create a wedge that is likely to lower employment. These are important lessons to reflect upon as the US recovers from the Great Recession. Though the US is recovering—with 20 consecutive months of private sector job growth—there are still 13.9 million people unemployed. Nearly 5.9 million of those unemployed have been unemployed for 27 weeks or more. To put these Americans back to work, the recovery must be stronger and sustained. Since taking office, President Obama has been laying the foundations for a stronger economy, both in the short term and long term. When the President took office the economy was losing over 800,000 jobs per month and GDP was contracting at an 8.9% annual rate. The Obama Administration took the necessary steps to break the back of the economic free fall, including implementing the American Recovery and Reinvestment Act (ARRA) and the Financial

2012 OECD Yearbook  

2012 OECD Yearbook

2012 OECD Yearbook  

2012 OECD Yearbook

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