The U.S. labor market is like an aging athlete; it is taking longer and longer to recover from recessions. It took two and a half years to regain the jobs lost during the 1990-92 recession. The next recession, which came in 2001, was short and mild (GDP barely fell), but it took four years for the job market to heal, prompting the Federal Reserve to administer the economy a long course of low interest rates. Then came the Great Recession. It took seven years for employment to return to its 2007 level. It is taking even longer for real wages to recover–they are still below their pre-recession trend.
Recessions Push People to Buy Cheap Things, Which Just Makes Everything Worse
The U.S. labor market is like an aging athlete; it is taking longer and longer to recover from recessions. This is in part because routine jobs are permanently outsourced or eliminated during recessions as firms strive to cut costs. But there’s more to it than that. Consumer behavior is also contributing to deeper recessions and slower recoveries. During downturns, consumers “trade down” to economize; that is, they reduce the quality of the goods and services they consume. For example, fast foods restaurants like McDonalds and Chipotle and general merchandise stores like Target and Walmart gained market share during the Great Recession. Trading down makes sense at an individual level, but at a macro level it creates a trap because goods and services of lower quality are produced with less labor than those of higher quality. So, as consumers flock to lower quality goods, they reduce the demand for American labor, adding to the woes of the recession.