Rethinking Jobless Recovery, Corporate Tax Breaks, and Offshoring

“Does growth lead to jobs? Economists have long thought so. But thanks to tectonic shifts in the nature of the U.S. economic landscape, the direct relationship may be weakening. And that could have big implications for how we define a healthy economy.

That growth and job creation go hand in hand is a basic assumption of our economic conversation—so uncontroversial that it needs little explaining.

Here’s how deeply ingrained the link is: In February, Mark Zandi, the respected chief economist for Moody’s Analytics, concluded in a study that the Republican proposal to cut $60 billion in spending would cost the economy half a percentage point of growth this year, or 400,000 jobs. The GOP disputed the finding that growth would suffer. But no one questioned the connection between growth and jobs, which was based on a standard formula similar to that frequently applied by economists of all stripes.

But consider this: Between the fourth quarter of 2007 and the second quarter of last year, the U.S. economylost almost 8 million jobs, an enormous figure by historic standards. Yet during that same period, economic activity declined by only 1.3 percent, according to the National Bureau of Economic Research—a far less dramatic dropoff than the huge number of jobs lost would predict using conventional models. By the same token, the latter half of last year saw solid economic growth, including record corporate profits, but weak job creation, with unemployment stuck around 9 percent. That was the “jobless recovery” we heard so much about……..”

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