October 6, 2009 10:14 a.m.
There is understandable worry and anguish over the fact that unemployment rates in the U.S. have not yet begun to fall despite the fact that in a technical sense the recession appears to have ended in July. It may well take several quarters or perhaps longer before the unemployment rate begins to drop month to month.The previous large recessions of July 1981 to November 1982, 16 months long and July 1990 to to March 1991, 8 months long provide interesting contrasts.In the first of these unemployment began to fall immediately after the economy reached its trough or low point that marked the end of the recession. Within a year the unemployment rate was markedly lower then at the trough.
But in the second example July 1990 to March 1991 although the recession was only half as long 8 months, unemployment continued to stay elevated even after the recession ended for the next 29 months. There is clearly a reason for this having to do with a change in employer behaviour, the impact of globalization, outsourcing and so on. It is too early to tell for certain but the Obama administration needs to weigh these factors as it considers extending the stimulus or enhancing it. Given what we know at present I would lean in the direction of extending unemployment and health insurance benefits and implementing a direct hire program for the unemployed that involved a combination of skill retraining and service employment in health care, education and care of the elderly as well as urban reconstruction. A kind of domestic peace corps that could employ perhaps as many as a million people for a period of 8 to 24 months at a guaranteed modest but liveable income. These sort of jobs would restore hope, improve the quality of life in American society and inject much needed aggregate demand. Forty billion dollars allocated to this measure over two years would employ a large number of people and accomplish a great deal.
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