Working Paper: NBER ID: w20183
Authors: Robert E. Hall
Abstract: The financial crisis and ensuing Great Recession left the U.S. economy in an injured state. In 2013, output was 13 percent below its trend path from 1990 through 2007. Part of this shortfall--2.2 percentage points out of the 13--was the result of lingering slackness in the labor market in the form of abnormal unemployment and substandard weekly hours of work. The single biggest contributor was a shortfall in business capital, which accounted for 3.9 percentage points. The second largest was a shortfall of 3.5 percentage points in total factor productivity. The fourth was a shortfall of 2.4 percentage points in labor-force participation. I discuss these four sources of the injury in detail, focusing on identifying state variables that may or may not return to earlier growth paths. The conclusion is optimistic about the capital stock and slackness in the labor market and pessimistic about reversing the declines in total factor productivity and the part of the participation shortfall not associated with the weak labor market.
Keywords: No keywords provided
JEL Codes: E22; E32; J21; J60; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Crisis (G01) | Collapse in Product and Labor Demand (J20) |
| Collapse in Product and Labor Demand (J20) | Shortfall in Output (E23) |
| Decrease in Business Capital (G31) | Shortfall in Output (E23) |
| Total Factor Productivity (D24) | Shortfall in Output (E23) |
| Labor Force Participation (J49) | Shortfall in Output (E23) |
| Unemployment (J64) | Economic Injury (K13) |
| Reduced Weekly Hours Worked (J22) | Economic Injury (K13) |