Charts of the Week: Recessions

Some observers think the U.S. economy may be headed toward another recession. How would we know, and are we prepared for another one when, inevitably, it arrives? Here is some research from Brookings experts that bears on these questions.

RECESSIONS DAMAGE JOBS AND THE ECONOMY

In recent research published by the Hamilton Project at Brookings and the Washington Center for Equitable Growth, experts point to the impact that recent recessions have had on employment and the economy. Heather Boushey, Ryan Nunn, Jimmy O’Donnell, and Jay Shambaugh write that “Recessions cause sizable damage in the short term and lead to millions of lost jobs and hundreds of billions of dollars in lost output.” Their analysis is part of a larger package of research about policies that could stabilize the U.S. economy in the next recession.

HOW TO TELL IF A RECESSION IS COMING

Experts from the Hamilton Project observe that two traditional methods of noting when recessions have started—waiting for an announcement from the National Bureau of Economic Research or observing GDP to decline over two consecutive quarters—“are appropriate for historical analysis but too slow to be useful for policy.” Instead, they explain a measure developed by economist Claudia Sahm that focuses on the unemployment rate’s three month moving average. “This approach,” they write, “is appropriate because … the indicator has both correctly signaled a recession 4–5 months following the beginning of the recession and has virtually never called a recession incorrectly since 1970.”

ARE UNEMPLOYMENT BENEFITS ENOUGH FOR THE NEXT RECESSION?

Gary Burtless explains that the U.S. unemployment insurance is not a single national program but a collection of 50 state systems, with variable time limits on UI compensation. On average, he notes, the maximum benefit duration offered in the U.S. is below 11 other OECD countries (and tied for lowest with the U.K.). “The least generous feature of the U.S. system,” Burtless writes, “has become even less generous, with scant discussion of the implications for workers’ well-being and for macroeconomic stabilization. The aim of the shift has plainly been to reduce payroll tax burdens on employers.”

See also the Hamilton Project paper on unemployment insurance and macroeconomic stabilization.