Financial pundits define a recession as two consecutive quarters of decline in real GDP. But as the old joke goes, “When your neighbor loses his job it’s a recession; when you lose your job, it’s a depression.” The National Bureau of Economic Research – NBER to the cognoscenti – has a more nuanced analysis based on their criterion of “a significant decline in activity”.
In their judgment, The Great Recession, measured from peak to trough, began in December 2007 and ended in June 2009, real growth in the second quarter of 2008 notwithstanding. The starting date is pretty easy to agree with: the unemployment rate rose from 4.7% to 5.0% in December of 2007; payroll employment peaked in January; and real GDP fell in the first quarter of 2008. But the end date of June 2009 is harder to swallow.
Payroll employment declined every month from February 2008 through September 2010, fully five quarters after the NBER terminal date. True, the rate of job loss was small compared to 2008:IV and 2009:I, but loss is loss. Unemployment data tells a similar story, peaking at 10.0% in October 2009 and then oscillating from 9.7% to 9.9% for the next six months before beginning a slow decline in May 2010. It’s become common wisdom that employment lags GDP recovery, but I would argue that the persistence of unemployment’s misery has become so great as to be disconnected from the rise and fall of the business cycle.
Let me suggest a more intuitive definition of an economic slack period: an interval in which the unemployment rate is at least 25% higher than its long-run equilibrium level. In my lifetime, the average monthly unemployment rate in the US has been 5.8%, placing my arbitrary threshold of labor misery at about 7.25%.
So let’s see how the 7.25% solution compares to business recessions since 1970.
Slack Labor Market Interval
12-1974 to 06-1977 (NBER measure ~ no recession)
05-1980 to 07-1985 (NBER measure ~ 1980:II-III, 1981:IV-1982:I)
12-1991 to 01-1993 (NBER measure ~ no recession)
12-2008 to present (NBER measure ~ 2008:I-2009:II)
12-1974 to 06-1977 (NBER measure ~ no recession)
05-1980 to 07-1985 (NBER measure ~ 1980:II-III, 1981:IV-1982:I)
12-1991 to 01-1993 (NBER measure ~ no recession)
12-2008 to present (NBER measure ~ 2008:I-2009:II)
By the NBER measure, we have been in recession less than 8% of the time since 1970; by the threshold measure, it’s almost 29% of the time. If you’re a college graduate (unemployment rate 4.2%), you’re more likely to think the recession has been over for a while; if you never graduated high school, (unemployment rate 13.1%), the recession may seem permanent.
The pain has not been shared evenly in this recession. The working poor have a much harder time of it than their better educated counter parts. The working poor for example have little leverage when it comes to getting increases in their pay their also more likely to be unemployed and on some form of government assistance.
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