John Maynard Keynes on the Ricardian Vice
Libertarians of Weak Principles

The Output-Employment Gap

Menzie Chinn:

Econbrowser: Three Years after the Great Recession's Start: GDP seem to continue growing, although at a slower rate than one might expect from such a deep recession (but probably in line with a recession coincident with a financial crisis). Of course, it would have been much worse without the stimulus package passed in February 2009.... One mystery, alluded to in Leonhardt's recent NYT article, is why GDP has grown at a pace so much faster than employment. Those who cite this as a puzzle of the recent recovery are somewhat off the mark. A substantial divergence between employment and output growth has been the hallmark of the last three recovery (1990's, 2000's, and the current episode).... The fact that this pattern shows up in previous US recoveries suggests that the phenomenon is not specific to policies adopted by the Obama Administration. The fact that the GDP-employment growth is not as pronounced in other countries with, arguably, greater unionization or labor power, further suggests that the ability of labor to wrest high wages is not the source of the divergence. So the puzzle remains...

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