Unemployment and Economic Recovery (CRS Report for Congress)
| Release Date |
Revised Aug. 20, 2010 |
| Report Number |
R40925 |
| Report Type |
Report |
| Authors |
Linda Levine, Specialist in Labor Economics |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Although the economy has begun growing again, it may be a while before the unemployment rate shows steady improvement. The unemployment rate is considered a lagging indicator, meaning that its ups and downs happen some time after the ups and downs of other indicators of economic activity. For example, more than a year elapsed before the unemployment rate trended downward following the end of the 1990-1991 and 2001 recessions. This led the two to be labeled jobless recoveries. By contrast, after four earlier recessions the unemployment rate began a sustained decline within four to five months. Unemployment often does not fall appreciably when economic growth first picks up because some firms may have underutilized labor that they kept on their payrolls during the recession to avoid incurring costs related to layoffs and rehiring. At the end of a recession as demand increases, some firms may initially be able to increase production without adding workers by raising the productivity of the labor on hand. But once the labor on hand has been fully utilized, output will grow at the growth rate of productivity until firms add workers. As an economic expansion progresses, output growth will be determined by the combined rates of productivity and labor force growth. If output growth exceeds the growth rate of productivity, then employment will rise. If employment growth exceeds the labor force growth rate, then the unemployment rate will fall.
