The “Job-Loss” Recovery: Not New, Just Worse
Starting in November 2001, the U.S. economy found itself in the weakest employment recovery since World War IL. During the first four year of the business cycle, private-sector employment remained below its prior peak. To maintain consumption, households borrowed record amounts of debt that, combined with federal budget deficits, contributed to the highest reported U.S. trade deficits. The slow recovery gave businesses little reason to invest, and when they finally did, it was narrowly concentrated in a few industries. This low investment was not due to scarce resources. Corporate profitability saw a strong recovery and reached historic highs by the sixth quarter after the business cycle trough. However, instead of investing in plant and equipment to produce output that might not find buyers, corporations spent their resources on speculative uses like share repurchases and dividend pay-outs. The reward was a strong stock market recovery amid a weak labor market recovery, another distinguishing feature of the early 2000s U.S. recovery. Many observers have put forward explanations for the "job-loss" recovery. This may not actually be what needs to be explained. The recovery simply resumed a trend that has been underway for more than twenty-five years. There has been a rising divergence between national productivity and labor compensation to the gain of corporate profitability. The job-loss recovery stands out only in the stark relief provided by the tight labor market and rising labor share that characterized a brief period in the late 1990s.