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  October 25th, 2016 | Written by

Employment is Growing, But Where’s the Recovery?

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  • The United States economy may be creating jobs, but it's not in recovery.
  • For the economy to recover its growth rate would have to exceed its long-term average.
  • Low worker productivity growth explains the growth in jobs in a nonrecovery.

The United States economy may be creating jobs, but it’s not in recovery.

That was the central message contained in a recent report from the American Enterprise Institute, a conservative think tank based in Washington.

For the economy to recover from the Great Recession, the paper posits, its growth rate would have to exceed its long-term average in order to make up the lost ground. The U.S. economy’s average growth rate between 2009 and 2015 was 1.3 percent, well below the long-run average of 2.06 percent between 1869 and 2015 or 2.01 percent between 1949 and 2015.

So much for the recovery.

But employment growth since October 2010 has been strong, averaging 1.7 percent per year through July 2016, while unemployment was more than halved from 10.0 percent to 4.9 percent during the same period.

The key element explaining this seeming paradox, according to the report, lies in worker productivity. Productivity grew by 0.5 percent per year between 2010 and 2015, as compared with 1.7 percent between 1999 and 2015.

Policies that would stimulate growth by enhancing worker productivity, according to the paper, are “pro-market policies, including well-functioning institutions.” Law and order, free trade, a lack of inefficient regulation, superior public infrastructure, strong education and health institutions, fiscal discipline, efficient taxation, and sound monetary policy—as reflected in low and stable inflation—are all elements that fall under those headings.

The federal government’s response to the Great Recession—characterized by transfers of money to people through social programs and a dramatic expansion of the money supply—run counter to a strategy for long-term robust recovery and growth, according to the paper.

Other possible contributions to low-productivity growth, according to the report, include deteriorating infrastructures, a slower pace of technological progress, uncertainty about long-term taxes and entitlement benefits, and the massive run-up of public debt since the Great Recession.