‘Unclogging’ the Popular “CalculatedRisk” Employment Chart

Below the original version:

The compact (‘unclogged’) version simplifies by averaging the 1953 through 1980 recessions. The ones that are singled out have ‘special features’.

The 1948 recession is characterized by a steep and deep employment fall, which reverses more quickly than average.

In the 1981 recession the drop in employment is relatively deep and the rebound time longer than average. That was the recession during the ‘Volcker Transition’, which brought inflation down permanently.

The behavior of employment in the 1990 and 2001 recessions was special enough to get those recoveries labeled as “jobless”. Although employment falls much less than average, the rebound back to the previous peak is slow, particularly following the 2001 recession.  One has only to Google “jobless recoveries” to get swamped by articles and analyses. Although there´s still no consensus on its causes it appears likely that structural factors played a role. At the time I found this early article from the New York Fed interesting.

The 2007 employment fall and rebound is a whole different animal. For several months following the start of the recession, employment falls more slowly than average, but suddenly ‘tanks’, diving much deeper than at any other time. Given the depth of the drop the rebound is ludicrous! Note the timing of the ‘dive’ in NGDP. Before that, things were evolving according to ‘script’!

What I do next is pick the two recessions with the deepest fall in employment – 1948 and 2007 – and check for the associated behavior of nominal spending (NGDP). The pattern that comes out is eerie. If the charts weren´t labeled and the axis quantified, it wouldn´t be easy or obvious to say which chart depicts nominal spending and which shows employment.

As Scott Sumner has just posted, “Money is half of macro” and the evidence shown here is consistent with that view. Monetary policy has been tight enough to keep NGDP from getting anywhere close to some ‘reasonable’ trend level. Employment ‘responds’ accordingly.

The next chart shows that it´s also true for the 1981 recession. Volcker, after restraining spending growth and bringing inflation down, allows nominal spending to ‘speed up’. Employment follows along.

2 thoughts on “‘Unclogging’ the Popular “CalculatedRisk” Employment Chart

  1. Pingback: Playing around with the famous Chart that compares employment over all post war recessions shows the overriding importance of monetary policy in the outcomes « Economics Info

  2. Pingback: Skepticlawyer » The misbegotten birth of macro

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