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Is the Link between Output and Jobs Broken?

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  • Dimitri B. Papadimitriou
  • Greg Hannsgen
  • Michalis Nikiforos

Abstract

As this report goes to press, the official unemployment rate remains tragically elevated, compared even to rates at similar points in previous recoveries. The US economy seems once again to be in a "jobless recovery," though the unemployment rate has been steadily declining for years. At the same time, fiscal austerity has arrived, with the implementation of the sequester cuts, following tax increases and the ending of emergency extended unemployment benefits just two months ago. Our new report provides medium-term projections of employment and economic growth under four different scenarios. The baseline scenario starts by assuming the same growth rates and government deficits as the Congressional Budget Office's (CBO) baseline projection from earlier this year. The result is a new surge of the unemployment rate to nearly 8 percent in the third quarter of this year, followed by a very gradual new recovery. Scenarios 1 and 2 seek to reach unemployment-rate goals of 6.5 percent and 5.5 percent, respectively, by the end of next year, using new fiscal stimulus. We find in these simulations that reaching the goals requires large amounts of fiscal stimulus, compared to the CBO baseline. For example, in order to reach 5.5 percent unemployment in 2014, scenario 2 assumes 11 percent growth in inflation-adjusted government spending and transfers, along with lower taxes. As an alternative, scenario 3 adds an extra increase to growth abroad and to private borrowing, along with the same amount of fiscal stimulus as in scenario 1. In this last scenario of the report, the unemployment rate finally pierces the 5.5 percent threshold from the previous scenario in the third quarter of 2015. We conclude with some thoughts about how such an increase in demand from all three sectors—government, private, and external—might be realistically obtained.

Suggested Citation

  • Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos, 2013. "Is the Link between Output and Jobs Broken?," Economics Strategic Analysis Archive sa_mar_13, Levy Economics Institute.
  • Handle: RePEc:lev:levysa:sa_mar_13
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    1. Wynne Godley & Dimitri B. Papadimitriou & Gennaro Zezza, 2008. "Prospects for the U.S. and the World -- A Crisis That Conventional Remedies Cannot Resolve," Economics Strategic Analysis Archive sa_dec_08, Levy Economics Institute.
    2. Congressional Budget Office, 2013. "Updated Budget Projections: Fiscal Years 2013 to 2023," Reports 44172, Congressional Budget Office.
    3. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    4. Rania Antonopoulos & Kijong Kim & Tom Masterson & Ajit Zacharias, 2010. "Investing in Care: A Strategy for Effective and Equitable Job Creation," Economics Working Paper Archive wp_610, Levy Economics Institute.
    5. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    6. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    7. Congressional Budget Office, 2013. "Updated Budget Projections: Fiscal Years 2013 to 2023," Reports 44172, Congressional Budget Office.
    8. Greg Hannsgen & Dimitri B. Papadimitriou, 2012. "Fiscal Traps and Macro Policy after the Eurozone Crisis," Economics Public Policy Brief Archive ppb_127, Levy Economics Institute.
    9. Dimitri B. Papadimitriou & Greg Hannsgen & Gennaro Zezza, 2011. "Jobless Recovery Is No Recovery: Prospects for the US Economy," Economics Strategic Analysis Archive sa_mar_11, Levy Economics Institute.
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    Citations

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    Cited by:

    1. Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-flow Consistent Macroeconomic Models: A Survey," Economics Working Paper Archive wp_891, Levy Economics Institute.
    2. Fernando Rios-Avila, 2015. "A Decade of Declining Wages: From Bad to Worse," Economics Policy Note Archive 15-3, Levy Economics Institute.
    3. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2019. "Can Redistribution Help Build a More Stable Economy?," Economics Strategic Analysis Archive sa_4_19, Levy Economics Institute.
    4. Michalis Nikiforos & Gennaro Zezza, 2017. "The Trump Effect: Is This Time Different?," Economics Strategic Analysis Archive sa_apr_17, Levy Economics Institute.
    5. Michalis Nikiforos, 2016. "Distribution-led Growth through Methodological Lenses," Economics Working Paper Archive wp_879, Levy Economics Institute.
    6. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2013. "Rescuing the Recovery: Prospects and Policies for the United States," Economics Strategic Analysis Archive sa_oct_13, Levy Economics Institute.
    7. Fernando Rios-Avila, 2015. "Losing Ground: Demographic Trends in US Labor Force Participation," Economics Policy Note Archive 15-7, Levy Economics Institute.
    8. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos & Gennaro Zezza, 2015. "Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy," Economics Strategic Analysis Archive sa_may_15, Levy Economics Institute.
    9. Michalis Nikiforos, 2013. "Employment Recovery? after the Great Recession," Economics Policy Note Archive 13-03, Levy Economics Institute.
    10. Michalis Nikiforos, 2013. "A New 'Lehman Moment,' or Something Worse? A Scenario of Hitting the Debt Ceiling," Economics Policy Note Archive 13-09, Levy Economics Institute.

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