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How Are We Doing, Recovery-Wise?

Microsoft Excel

There is the unfortunate fact that none of our net reduction in the unemployment rate over the past year comes from increases in the employment-to-population ratio and all of it comes from decreases in labor force participation.

Leaving that to one side--assuming (which is surely not the case) that the unemployment rate is a sufficient statistic for the health of the labor market and that all those dropping out of the labor force are not of special concern--how are we doing, recovery-wise?

Between 1950 and 1990--back in the old days of Federal Reserve inflation-fighting recessions--the unemployment rate would on average return 32.4% of the way back to its natural rate over the course of a year.

Microsoft Excel 1

If the unemployment rate had started to follow such a path after its fall 2009 peak, we would now have an unemployment rate of 8.3% instead of 8.9%.

Between 1950 and 1990--back in the old days of Federal Reserve inflation-fighting recessions--the employment to population rate would on average rise an extra 0.227 in a year for each year that the unemployment rate was above its natural rate by one percentage point.

If the employment-to-population ratio had started to follow such a path after its fall 2009 peak, we would now have an employment-to-population ratio of 59.7% instead of 58.4%.

Microsoft Excel 2

We all have our guesses as to the mechanism--as to where the labor-market equilibrium-restoring forces in the economy and in the political economy have gone.

But what pieces of evidence would be convincing and help us tell which of the theories of slow labor-market recovery are correct? And where to look for them?

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