Are jobless recoveries history? Okun’s law, insufficient stimulus, and slow recoveries

The three recessions in the three decades between 1990 and 2009 were said to be followed by jobless recoveries, as employment continued to fall even after the economy began growing during the recovery. This implies that normal recoveries were followed by abnormally ‘jobless’ recoveries. However, these ‘jobless’ recoveries were actually just slow recoveries, as the recoveries in employment can be predicted using the Okun’s relationship relating changes in real GDP and employment. Output was simply growing slowly to create enough new jobs to keep unemployment from rising. While the Okun coefficients changed, the overall relationship continued to hold. The recovery periods of the 1930s, despite the massive disruptions and dislocations of the Great Depression, similarly follow an Okun’s law relationship. Jobless recoveries in the 1980s and 1990s reflect insufficient stimulus. This is confirmed by the experience after the COVID-19 pandemic, where unprecedented fiscal and monetary stimulus resulting in a rapid recovery that was ‘jobfull’ rather than jobless. Whether jobless recoveries will reappear going forward will depend on the amount of stimulus in the next recovery period.