As the recovery in the United States economy continues to fail in improving the employment scene, discussion on the link between aggregate demand and employment has become interesting and urgent. Deepankar Basu, assistant professor of economics at UMass Amherst, is the co-author of a paper on this topic. Basu and his co-author, Duncan Foley, find a weakening relationship between output growth and employment.
As we document in this paper, the close relationship between output growth as measured by real GDP and employment generation that characterized the U.S. economy over the two decades after World War II has been weakening since the mid 1980s. This has led both to “jobless recoveries” in which aggregate unemployment has decreased less during the upturn phase of business cycles than what would have been predicted on the basis of the past association between output growth and unemployment changes, and also to “outputless crashes” in which the aggregate unemployment rate has increased by more during the downturn phase of the business cycle than past experience would have predicted.
Download Dynamics of Output and Employment in the U.S. Economy by Deepankar Basu & Duncan K. Foley
Media coverage of this paper:
New York Times Economix blog post on the evolving job story in the U.S. by Nancy Folbre refers to the paper:
Financial Times blog entry by Gavyn Davies refers to the paper (affiliations listed incorrectly as Amherst College):
The Lookout on Yahoo! News used the paper to do a story on the employment scenario in the U.S.: