Jobless Recovery Shows Inadequate Demand

Posted on  

"Jobless Recovery Shows Inadequate Demand"

Annie Lowrey explains the jobless recovery:

Wondering what’s behind those recent jobless recovery numbers?

1. Fortune 500 companies tripled their profits to $391 billion in 2009.

2. They also slashed their payrolls by more than 800,000 jobs.

But here’s the thing. Normally, if I’m running a delicious deli and making lots of profits then soon enough I’m going to want to open a second location and make even more money. Maybe you’re able to finance the startup of the new location out of the profits you made running the first, or else maybe a bank is willing to loan you the money since, after all, your first location was so profitable. The point is, new location equals new jobs. Similarly, if my factory is profitable and profits are growing, I’ll want to expand production and that means more hiring.

Unless, that is, I think I’m operating my business in an overall climate of weak, flat demand. In that case, even though my business might be very profitable at the current volume of operations, there’s reason to think it’ll be hard to sell any more product even though right now I’m selling product profitably. For example, suppose you let the level of nominal GDP fall $1.3 trillion below trend:

g98023400023204535364355490620732 1 1

My fear is that as GDP growth continues to leave us below trend, the recovery will continue to be jobless and people are going to confuse the cause and say that employment isn’t growing because there’s too much productivity or firms are too profitable or some such. The problem, however, is simply that there isn’t enough demand—that’s why increased efficiency is taking the form of decreased employment rather than increased production. Entrepreneurs, managers, and would-be lenders need to have confidence that the overall level of demand is going to be adequate to make it worth expanding profitable operations.

« »

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.