May 30, 2012

Economic Growth is the Best Labor Market Policy

Keith Hall

Former Senior Research Fellow
Summary

The Great Recession has been a humbling experience for economists and we’re still struggling to understand the challenges ahead. With tens of millions of people still jobless or underemployed, the one thing that we know for sure is that we need years of strong growth to achieve a full recovery. We need to keep that in mind.

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Today the economy is barely keeping its head above water with an average of about 115,000 in job growth per month since 2009. Although the unemployment rate has dropped 2 percentage points from 10 percent in 2009 to 8.1 percent today, this is not because things are getting better. Instead it’s a result of the largest disengagement from the labor force in more than 60 years. Due to declining labor force participation, there are more than 5 million jobless that are no longer counted.

With twice as many long-term unemployed today than after any other recession, there is nothing more important or urgent than the need for serious labor market recovery. The best labor market policy, however, is good economic policy that creates the right conditions for economic growth. This was made very clear last year when it became public the Department of Labor spent $500 million on training people for green jobs that simply weren’t there.  We ended up with a lot of people all dressed up with nowhere to go.

The Great Recession has been a humbling experience for economists and we’re still struggling to understand the challenges ahead. With tens of millions of people still jobless or underemployed, the one thing that we know for sure is that we need years of strong growth to achieve a full recovery.  We need to keep that in mind.