The Great Recession may have crushed America’s economic potential
The Great Recession may have crushed Americas economic potential
By Neil Irwin at the Washington Post
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/05/the-great-recession-may-have-crushed-americas-economic-potential/
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The authors argue that while the natural rate of unemployment the proportion of joblessness in a fully healthy economy has likely risen due to the recession, that effect should be dissipating. We see the evidence of recent years as suggesting that the natural rate of unemployment may have moved up between ½ and 1½ percentage points since the onset of the recent recession, they write. However, the evidence also suggests that the factors leading to this increase have begun to reverse and that further increases in aggregate demand might therefore bring about further healing in the labor market.
But beyond analyzing the economic situation in which the United States finds itself, the Fed staffers make an important argument worth considering for policymakers here and around the world.
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In other words, when there is weak demand and people remain out of work, the cyclical downturn can become a structural downturn. That means that policymakers should move particularly aggressively to keep that from happening.
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