Goldman School of Public Policy - University of California, Berkeley

Working Paper Series

The Great Recession and its Aftermath: What Role for Structural Changes?

Authors

  • Jesse Rothstein, Goldman School of Public Policy, University of California, Berkeley

History

  • Goldman School of Public Policy Working Paper (August 2015)

Abstract

The last eight years have been disastrous for many workers, and particularly so for those with low human capital or other forms of disadvantage. Although the Great Recession officially ended in 2009, the labor market has been very slow to recover. One explanation attributes the ongoing poor labor market outcomes of young and non-college workers to the combination of deficient aggregate labor demand and greater sensitivity of marginal workers to cyclical conditions. A second attributes the recent outcomes to structural changes in the labor market. These have importantly different policy implications: Cyclical explanations imply that the main challenge is to raise aggregate labor demand and that if this is done many of the patterns seen in the last several years will revert to their prior trends. Structural explanations, by contrast, suggest the recent experience is the “new normal,” absent policy responses to encourage more (or different) labor supply. This paper reviews recent data for evidence on the two explanations, focusing on wage trends as an indicator of the relative importance of labor supply and demand. I find little evidence of wage pressure in any quantitatively important labor markets before 2015. The most recent data is more mixed, but still suggests substantial ongoing slack. 

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