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Where are we in this recovery?
April 10, 2012
   
   
The U.S. Labor Department announced last Friday that employers added 120,000 jobs in March. Financial market participants, in particular, were disappointed by the news because the number was much lower than forecasts. (The consensus forecast from a Bloomberg survey expected 205,000 to be added in March.) Some optimists argue that this one-month weak employment data may not necessarily indicate the halt of the positive economic outlook trend: added employment had exceeded 200,000 for the past three months.

However, even if the nonfarm employment continued to rise at the forecasted level, the recovery in the labor market is still very weak when compared to previous recessions. Yes, the labor market is recovering, but it is still not even close to the pre-crisis employment level (see figure).

MilkenInstitute

Many economists like to compare the pattern of the recent recession and recovery to the periods of 1973-75 or 1981-82. These recessions were about the same duration as the most recent one (18 months for the recent recession versus 16 months for the 1973 and 1981 recessions).

We are now in the 51st month after the recession started in December 2007, and the employment level is still far below the pre-crisis peak. The previous two recessions took only about half the time to reach the pre-crisis employment levels. This shows that there is a long way to go before we will enjoy a full recovery.

MilkenInstitute

To me, the slow recovery indicates a different set of underlying dysfunctions were at play before the Great Recession, and as pointed out by Chairman Bernanke, "further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses … "

And for these to happen, I hope policymakers will check out some of the recommendations my Institute colleagues have published in our reports, including "Fixing the Housing Market: Financial Innovations for the Future" and "Jobs for America: Investments and Policies for Economic Growth and Competitiveness."

For the economy to grow sustainably in the long run, it's clear that structural economic and societal reforms must be addressed. As discussed by James K. Galbraith in this new book, "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis," inequality has become the central issue in the aftermath of the crisis, and sustainable economic growth requires reforms among multiple sectors, including the financial industry.