The Unassuming Economist

From the Wall Street Journal:

Stop worrying about the “jobless recovery.” Start worrying about the recovery-less recovery.

Nearly four years after the recession officially ended, the unemployment rate remains elevated, at 7.5%. The share of the population that’s working or looking for work is at a 30-year low. More than 2.5 million fewer Americans are working today than when the recession began.

Such grim statistics have led many economists to ask whether there might be deep, “structural” factors holding back hiring. Various papers have attributed the slow pace of job growth to the weak housing market, the downturn in specific industries and the long-run decline in the share of the population that’s working.

Others, however, have argued that there is little evidence for structural problems, and have said weak hiring is due to something much simpler: the slow pace of overall economic growth. In one recent paper, economists Laurence Ball, Daniel Leighand Prakash Loungani said the improvement in the job market during the recovery has been consistent with a long-documented relationship between unemployment and economic growth known as Okun’s Law.

In a new paper published by the National Bureau of Economic Research,University of Wisconsin economist (and blogger) Menzie Chinn and French economists Laurent Ferrara and Valerie Mignon also look at the relationship between economic growth and the job market. But rather than focus on unemployment, they focus on employment — an approach that allows them to avoid the nettlesome question of who should count as unemployed.

Mr. Chinn and his colleagues find that slow growth accounts for the majority of the continued jobs gap — but not all of it. The U.S. has about 1.2 million fewer jobs than it should based on long-run trends. The authors are careful not to say the entire gap is due to structural factors — some of it may be due to short-term issues, or to flaws in their economic model — but their findings do suggest the weak recovery alone doesn’t explain the weak job market.

Continue to the read the article here.