Real (inflation-adjusted) per capita GDP in France, Greece, Italy, Spain, the United Kingdom, and the United States is lower today than before the Great Recession hit. Indeed, Greece’s per capita GDP has shrunk nearly 25% since 2008.
There are a few exceptions: After more than two decades, Japan’s economy appears to be turning a corner under Prime Minister Shinzo Abe’s government; but, with a legacy of deflation stretching back to the 1990’s, it will be a long road back. And Germany’s real per capita GDP was higher in 2012 than it was in 2007 – though an increase of 3.9% in five years is not much to boast about.
Elsewhere, though, things really are dismal: unemployment in the eurozone remains stubbornly high and the long-term unemployment rate in the US still far exceeds its pre-recession levels.
In Europe, growth appears set to return this year, though at a truly anemic rate, with the International Monetary Fund projecting a 1% annual increase in output. In fact, the IMF’s forecasts have repeatedly proved overly optimistic: the Fund predicted 0.2% growth for the eurozone in 2013, compared to what is likely to be a 0.4% contraction; and it predicted US growth to reach 2.1%, whereas it now appears to have been closer to 1.6%.
It is possible, even likely, that US growth in 2014 will be rapid enough to create more jobs than required for new entrants into the labor force. At the very least, the huge number (roughly 22 million) of those who want a full-time job and have been unable to find one should fall.
But we should curb our euphoria. A disproportionate share of the jobs now being created are low-paying – so much so that median incomes (those in the middle) continue to decline. For most Americans, there is no recovery, with 95% of the gains going to the top 1%.
America’s new problem is long-term unemployment, which affects nearly 40% of those without jobs, compounded by one of the poorest unemployment-insurance systems among advanced countries, with benefits normally expiring after 26 weeks. During downturns, the US Congress extends these benefits, recognizing that individuals are unemployed not because they are not looking for work, but because there are no jobs. But now congressional Republicans are refusing to adapt the unemployment system to this reality; as Congress went into recess for the holidays, it gave the long-term unemployed the equivalent of a pink slip: as 2014 begins, the roughly 1.3 million Americans who lost their unemployment benefits at the end of December have been left to their own devices. Happy New Year.
Meanwhile, a major reason that the US unemployment rate is currently as low as it is, is that so many people have dropped out of the labor force. Labor-force participation is at levels not seen in more than three decades. Some say that this largely reflects demographics: an increasing share of the working-age population is over 50, and labor-force participation has always been lower among this group than among younger cohorts.
So, with Europe’s Great Malaise continuing in 2014 and the US recovery excluding all but those at the top, count me dismal. On both sides of the Atlantic, market economies are failing to deliver for most citizens. How long can this continue?
Source: Project-Syndicate Org. Joseph Stiglitz
