Why Washington Can't Create Real Jobs

Feb. 16, 2010 11:47 AM ET11 Comments
Rick Newman profile picture
Rick Newman
405 Followers

The history of recessions offers some unwelcome news for all those in Washington who think they have the power to boost hiring.

Jobs used to return quickly after recessions. After the downturn that ended in 1975, it took only two months for the unemployment rate to peak and then start falling. In 1982, unemployment peaked the very same month that the recession ended and then dropped as sharply as it had risen. That was when the U.S. economy was less globalized and more self-contained. Foreign companies found it difficult to compete with American ones. When recessions ended, things went back to normal and many employers simply rehired the people they had laid off.

That's not how it works anymore. After the 1991 recession, it took 15 months for the unemployment rate to peak and net job growth to resume. After the 2001 recession, it took 19 months. Technology is one reason; it allows firms to be more productive with fewer workers and put off hiring once a recovery begins. Globalization also allows firms to replace expensive American workers with cheaper ones overseas, and there's no better pretext for paring labor costs than a grueling recession.

Jobless recoveries are now the norm. And that's what we're in right now. The official arbiters haven't yet declared when (or if) the recession has technically ended, but many economists date the end of the recession to around August 2009. The economy is growing again, following the steepest decline since the Depression—but it's not adding new jobs. And the recent recession was obviously far worse than the fairly mild ones in 1991 and 2001. So the politicians are on the case, with plans to spend billions more to encourage firms to start hiring.

The general idea is that business-tax breaks specifically linked to new hires

This article was written by

Rick Newman profile picture
405 Followers
I am Chief Business Correspondent for U.S.News and author of the regular Flowchart column (http://www.usnews.com/flowchart) at usnews.com (http://usnews.com/). I'm a journalist, obviously, not a financial professional, and I don't take positions on stocks or investment themes. Instead, I try to make the connections between the things consumers care most about and the abstruse workings of the global economy. Oh - and point out the many myths and follies of our hyperbolic media. Busy times for that.

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