... The fact that falling hours have been accompanied by rapidly-rising productivity is what has given us not a jobless recovery but a massive job-loss recovery. The normal pattern we would expect from the past two years' output growth would be that employment and hours would have been nearly flat. Why the different pattern this time? We think that it is because firms are no longer "hoarding labor" when times are slack because the industries losing jobs no longer expect employment to bounce back.
This means that we no longer have any confidence that we understand the cyclical pattern of productivity growth--which means that we have little ability to translate the (high) productivity growth numbers we see into information about what the underlying long-run trend growth rate of the economy is. ...
This is part of a lengthy DeLong post; it looks like he did it for one of his undergraduate econ classes.
Economists are puzzled by why employment continues to fall even as both GDP and productivity rise. The concern is that something is different about our economy now; perhaps job losses reflect a permanent change in employment structures. For example (my example, not DeLong's), no further American manufacturing and a very much smaller American IT industry; accompanied by a burgeoning market for butlers, chefs, nannies, personal physicians, retained attorneys, personal pilots, etc to serve the new ultra-rich.
That would be fine, if people could switch from mechanical enginnering to pastry preparation with ease and comfort.
Look for socialism to make a comeback, probably with a different label. Bush is already setting up a special post concerned with the decline of American manufacturing ...
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