I want to write a quick micro-rebuttal to David Leonhardt. Here is how he answers the question of why our recovery, and other recent economic recoveries have tended to be jobless:
Economists are now engaged in a spirited debate… about the causes of the American jobs slump….
…But beyond these immediate causes, the basic structure of the American economy also seems to be an important factor. This jobless recovery, after all, is the third straight recovery since 1991 to begin with months and months of little job growth.
Why? One obvious possibility is the balance of power between employers and employees.
Relative to the situation in most other countries — or in this country for most of the last century — American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.
I find the explanation that a lack of labor market rigidities explains our slow jobless recovery very unconvincing. One could make the case that labor market rigidities prevent firms from laying off more workers, which would make for a less steep rise in unemployment during a recession, and could also keeps it from reaching as high of a peak. But lack of labor markets as a cause for a slow recovery? There’s just no story there.
So is our labor market characterized, relative to international comparisons, as being particularly deep or just slow to recover relative to economic growth? I think it is the latter. According to OECD data, in 2009, the year when the average unemployment was highest, the U.S. ranked 10th among OECD countries by unemployment, at 9.3%. This is compared to the Euro area average of 9.4% and the European Union average of 8.9%. Doesn’t exactly make the U.S. sound like an outlier here.
So if David is right, and our GDP recovery is outperforming our unemployment recovery, it doesn’t sound like it’s mostly about the depth unemployment, but rather the slowness of job growth. Does he really think that too little union power explains this and that if we had more unionization firms would be hiring faster? Maybe he does, but nowhere in his article does he explain why this would be the case, and I find it hard to imagine how it could be so.
ADDENDUM: It occurs to me that I should obviously be looking at changes in unemployment rather than levels before dismissing the theory that unions prevented deeper job cuts. I’m open to that possibility, but still don’t find it plausible that unions are causing more job growth, which is what Leonhardt was arguing. Also, to address some commenter criticism I’ve expanded the Leonhardt quote above to illustrate more clearly that he was explicitly referring to job growth and not just job losses. I’ll write more on this later.