If you’re an observer of business cycle patterns, and who isn’t, this isn’t news to you. But you still might find this to be a useful picture of the phenomenon of moving from V to L.
It’s simply employment as a share of the population–so-called employment rates for people at least 16 years old, considered a good proxy for labor demand. As you can see, it’s highly cyclical. But it provides a useful picture of the changing nature of recessions and recoveries, or the morphing from V, through U, to L.
The first three cycles show your grandfather’s recession—there’s some demand shock, a bunch of guys get furloughed from the factory, there’s a correction, they get called back to work, and boom—there’s your V.
The next two cycles are stretched out a bit more—these are the U’s. They were “jobless recoveries”—I know, how can you have a recovery without jobs?—good question. Globalization, the loss of manufacturing jobs, milder demand shocks, the increased use of temp workers, more of a just-in-time inventory approach to staffing, were some of the main factors which gave these recoveries their protracted shapes.
Next, the dreaded L, with which we’re currently living. Clearly, the downturn was the deepest in the picture, and was thus beset by the interaction of this depth along with all the U factors just noted. Add in the wealth effects of the housing bust, the financial bust, the credit crunch, and fading stimulus and you get the picture.
Recent job gains haven’t much moved the L to more of a U, suggesting employment growth is trending at about the growth rate of the adult population.
Such portentous shifts in macro trends deserve more than a blog post, but for now, V through U to L serves as a useful summary.