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Josh Bivens: Nowhere Close: The Long March from Here to Full Employment

By Josh Bivens
The last official business cycle peak occurred in December 2007. After that, the economy entered 18 months of virtual freefall—with job losses averaging more than 750,000 per month for the worst six-month stretch. The official end of the recession was June 2009—and some have recently declared full recovery has been reached in the 54 months since, as 2013 per capita GDP finally exceed its pre-recession levels. However, for the very large majority of Americans who rely on paid employment for the vast majority of their income, recovery likely still feels very far off. And they’re right—by any reasonable definition the United States is far from having reached a full recovery. That’s because simply clawing back to the per capita income level that prevailed before the start of the Great Recession is far too low a bar to clear to declare mission accomplished on recovery. The reason for this is simple: Joblessness (and the sapping of bargaining power that accompanies its rise even for still-employed workers) rises whenever a gap develops between the economy’s underlying productive potential and aggregate demand for goods and services. The intuition here is simple: A given number of customers’ demands can be satisfied with fewer people as each incumbent worker becomes more productive, and each new potential worker (new graduates, for example) seeking to enter the workforce will only be employed if there is extra consumer demand for what he or she produces. So, demand has to rise in line with the economy’s productive potential in order to keep joblessness from rising.
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