Jason Furman, who chairs the Council of Economic Advisers, spoke at Brookings on Thursday about the significant progress of the labor market since the Great Recession and the challenges ahead. While Chairman Furman spoke mostly about aggregate trends, he also highlighted specific groups that are struggling disproportionately in the recovery, such as young black males. In discussing the labor market, particularly unemployment rates, Furman repeatedly used the “Average in the Last Recovery” (which he defines as the average rates from December 2001 to December 2007) as a benchmark to judge the progress of the current recovery.
While getting back to unemployment rates we have not seen since before 2007 would be a large improvement, a talk discussing “Opportunities and Challenges in the U.S. Labor Market” can set more ambitious goals for the economy, such as a full employment economy. While Bob Rubin, who moderated the session, repeatedly asked questions about marginalized workers and full employment, Furman refocused the discussion towards closing gaps that started during the Great Recession. Unfortunately, the economy before the Great Recession was not characterized by broad-based economic growth, so there is little reason to only focus on that goal.
For example, real wages for non-supervisory production workers increased from $18.38 to $18.66 from 2000 to 2007, a seven year gain of just 1.6%. Similarly, the unemployment rate for African Americans was 0.7 percentage points lower in 2000 (7.6 percent) than in 2007 (8.3 percent) while the average for the recovery was 2 percentage points higher at 9.6 percent. Even worse, the black teen unemployment rate jumped from 2000 (24.3 percent) to 2007 (29.3 percent) while the recovery average was 30.7 percent. These numbers question whether or not the average from the last recovery is the best goal to set.
Furthermore, a recovery mentality encourages policy makers to focus on fixing the engines of the economy that have been sluggish since 2007. While some of these engines deserve focus, others, such as the bubble-driven boom in housing construction, should not recover. Instead, policy makers should examine new paths forward that address future economic challenges. For example, pushing for massive public investment in the green economy would both provide much-needed jobs and also help the United States address climate change. Given where the economy is in 2014, the average for the last recovery would be a big improvement, but it still would not get us to an economy that works for everyone.
Note: Data is from the Bureau of Labor Statistics.