One of the weirder ideas to take hold over the past twelve months is that we’re in the midst of some kind of mysterious “jobless recovery” where GDP growth has become uncoupled from unemployment. This is just false. As Scott Sumner observes the labor market has been doing exactly what you would expect in response to weak GDP growth: “In the first 6 quarters of recovery we’ve seen 2.8% annualised growth in real GDP, which is roughly the trend rate of GDP growth.”
2.8 percent annualized growth in real GDP is perfectly respectable for a country operating at full employment. And by the same token, the increases in employment we’ve seen would be perfectly respectable for a country operating at full employment. Job growth would expand roughly in proportion to population growth, with some movement around the margins in how many people are looking for work. That’s all fine stuff. The issue, obviously, is that we’re not at full employment. The recovery starts with us in a deep hole. So to get back to full employment you need rapid, catchup growth like after the 1981-82 recession where in “the first 6 quarters of recovery from that slump we saw 7.7% annualised real GDP growth.”
In other words, we need more demand-boosting measures. Nothing funny is happening other than bad public policy.