Some Observations on the Structure of the Labor Market after the Great Recession
Cameron M. Weber, Ph.D
St. John’s University, Queens, New York
Please cite the paper as:
Cameron M. Weber, Ph.D, (2018), Some Observations on the Structure of the Labor Market after the Great Recession, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
Abstract
This (short) paper takes as its starting point the (short) seminal article by Edward C. Prescott entitled ‘Some Observations on the Great Depression’.2 Prescott finds for the United States in the 1930s (from 1929 to 1939) that there is a 20% decrease in yearly hours worked per adult from the pre-Depression 1929 “steady state” and that there are (difficult to identify with certainty) structural changes in the labor markets related to government policy interventions occurring during the 1930s causing this change, whose effects lasted until at least 1949, almost 10 years after the end of the Depression. Our paper proposes that in our current era, post-Great Recession, post-Financial Crisis of 2008, there also have been institutional interventions which have resulted in structural changes in labor markets. These (also difficult to identify with certainty) institutional changes have led to a decrease in the Labor Force Participation Rate and have increased underemployment since the financial crisis of 10 years ago, social phenomena which are not captured in the headline employment data we see today. We compare and contrast the economic conditions as found in Prescott (1999) for the Great Depression with the economy today and find many similarities, as well as less significant differences.
Hi, please can you explain better your ideas about Edward C. Prescott (1999)’s quotation “The Keynesians had it all wrong. In the Great Depression, employment was not low because investment was low. Employment and investment were low because labor market institutions and
industrial policies changed in a way that lowered normal employment.”?
Arturo, yes thank you for your comment. I think what he is referring to is what Robert Higgs calls ‘regime uncertainty’…because the rule of law was changed so much during the New Deal (the ‘constant experimentation’) that there was an uncertain investment climate, and it was this that led to net negative investment for the period.