During the typical month when jobs increase by about 100,000, 5.1 million workers are hired and five million separate from their jobs, resulting in a net change of +100,000 jobs.
…more hires are needed, specifically about 5.2 million in the average month. We are just past the halfway point in getting hiring back to normal levels.
Pointer from John Cochrane.
The AS-AD story is that there is still not enough aggregate demand to stimulate enough new hires per month to overcome (new job separations per month + labor force growth + excess workers accumulated over the past six years of weak AD).
The PSST story is one of huge frictions that keep people from working in the market economy. One friction is that as technology and other factors change in the economy, the discovery process of new ventures does not keep pace. Another source of friction is government policies that reduce supply and demand in the labor market.
I doubt that there is an empirical method of distinguishing between these two stories. However, I would note that in the post-2008 period there are relatively few cases of workers getting laid off and returning to their old jobs. If there were large numbers of such cases, that would suggest that the problem of discovering new patterns of sustainable specialization and trade was relatively unimportant, and it would incline me toward the AS-AD story.
I wonder if Nick Rowe might argue (based on his post that you recently linked to) that one could close the loop between AS/AD and PSST by arguing that one of the huge frictions that keeps people out of the market economy, some might say THE key friction, is money.
In this formulation, AD (in the market monetarist sense) is not so important in and of itself but rather as an indicator, maybe THE indicator, of money-induced frictions.
I would argue that this is a story about what happens when much of the frictions go away.
And if the deficiency of sustainable trade is due to government policy, that of emerging market current account surpluses and of our own lack of response to them? That could persist a long time.
As my Chinese advisor used to say “I know you gonna hate it” but I have wonders if it is deflationary. We send them dollars. They buy Treasury’s. Government spending sterilizes the money by a <1 multiplier.
“…I would note that in the post-2008 period there are relatively few cases of workers getting laid off and returning to their old jobs.”
When did that EVER happen? This is a serious question.
I’m 33 and to me, “laid off” is just a euphemism for “fired” with an implied “because the business needed to cut costs, not because you were incompetent”. I have gathered that it perhaps once meant “we’re temporarily cutting this job, but if we recover we’ll open it up again and it’ll be here for you if you want it” or something along those lines. But seriously, when was that? As far as I can tell it was not within my lifetime. Certainly not as of the 1990/91 recession, in which my dad got laid off.
It was typical in the recessions between 1945 and 1980, where steel and autos were the main cyclical industries