The Great Recession and its Aftermath: What Role for Structural Changes?


Forthcoming, Social and Economic Effects of the Great Recession, RSF Journal of the Social Sciences

The last decade has been disastrous for many workers, and particularly so for those with low human capital or other forms of disadvantage. Although the Great Recession officially ended in 2009, the labor market was very slow to recover thereafter. One explanation attributes the ongoing poor labor market outcomes of young and non-college workers to the combination of deficient aggregate labor demand and greater sensitivity of marginal workers to cyclical conditions. A second attributes them to structural changes in the labor market. These have importantly different policy implications: Cyclical explanations imply that the main problem in recent years has been a shortage of aggregate labor demand, and that if demand is increased then many of the patterns seen since 2009 will revert to their pre-recession trends. Structural explanations, by contrast, suggest the recent experience is the “new normal,” absent policy responses to encourage more (or different) labor supply. This paper reviews data since 2007 for evidence on the two explanations. I focus on wage trends as an indicator of the relative importance of labor supply and demand. I find little evidence of wage pressure in any quantitatively important labor markets before 2015, pointing to demand as the binding constraint. The most recent data shows some signs of tightness, but still substantial ongoing slack.