Recession Panel Francesco Caselli
Three Questions • Is this recession special? • If so, why? • Is the policy response right?
Three Questions • Is this recession special? (I don’t know) • If so, why? (I don’t know) • Is the policy response right? (I don’t know)
Is this recession special? • A quick look at (US) data
So is it special? • Since inception: no • Since summer: yes … … but too soon to tell?
Explanation for the recession • End of house-price bubble • Banks stop lending to consumers and firms • Consumption and investment fall • Employment falls • Further falls in consumption … etc.
Explanation for the recession • End of house-price bubble • Banks stop lending to consumers and firms • Consumption and investment fall • Employment falls • Further falls in consumption … etc. Somehow does not feel “enough”
The role of fear • Massive wave of pessimism and uncertainty even for non-credit constrained agents • Self-fulfilling element could explain “the kink” • Confidence crisis fuelled by: – Visibility of financial sector – Over-the-top statements by gurus and policy makers
Policy response • Massive monetary stimulus, fiscal stimulus, and policies to restore financial- sector stability • What about confidence? – Articulate “animal spirits” view – Accept the political risk of sounding optimistic
The Global Economic Crisis: Meeting the Challenge Tim Besley LSE and Bank of England February 2009 1
Synchronised Downturn: Manufacturing PMIs Index 65 Sep 08 60 55 50 45 Euro area US 40 China UK Japan India 35 30 25 2005 2006 2007 2008 2009 Sources: Bloomberg, CIPs/Markit, Institute for Supply Management and Thompson Datastream Data are headline purchasing manager indices. A figure over 50 indicates rising output compared with 2 the previous month, and a figure below 50 indicates falling output.
Synchronised Downturn: Industrial Production Percentage Change on a year earlier, three month average 15 Sep 08 10 5 0 -5 Emerging Developed World -10 2001 2002 2003 2004 2005 2006 2007 2008 Sources: Bank Calculations and Thompson Datastream N.B: Data are weighted according to PPP weights, data to November 2008 3
Synchronised Downturn: Industrial Production Percentage Change on a year earlier, three month average 10 Sep 08 5 0 -5 US Japan Euro Area UK -10 -15 -20 2005 2006 2007 2008 Sources: Bank Calculations and Thompson Datastream Data to December 4
International Loosening of Monetary Policy Percentage US Japan Points 8 Euro Area Australia Canada Sweeden 7 China UK 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 Sources: National Central Banks and Thompson Datastream 5
International Fiscal Stimuli China United States Italy Germany Japan Canada France India Russia United Kingdom Brazil 0 2 4 6 8 10 12 14 16 Source: The Economist % of GDP Sources: National Central Banks and Thompson Datastream 6
The Global Economic Crisis: Meeting the Challenge 7
The labour market implications of the credit crunch Christopher Pissarides
What happens to labour in recession? • Job destruction increases, unemployment inflow increases • Unemployment goes up • Job creation goes down, prolongs unemployment spells • Long-term unemployment builds up, introduces persistence • Output picks up but unemployment slower to react
Is this recession conforming? • This scenario was most emphatic in the early 1980s recession • There are some signs that this recession is following a similar pattern but at a much lower scale • From early 2008 redundancies are up sharply but unemployment picking up slowly • Output impact seems minimal
Speculative views • Despite these early signs, this recession will not hit the labour market badly because of the reforms of 1980s and 1990s • Decline of unions, reform of unemployment insurance, more strict supervision of benefit rules • Will bring wage moderation, will not allow big increase in long-term unemployment
Much less impact on unemployment UK umemployment rate 12 1986 1993 10 8 per cent 6 2004 1979 4 2 0 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2
Despite sharp rise in redundancies redundancy rates 16 per thousand of previous quarter 14 12 10 8 6 4 2 0 5 7 8 0 1 3 4 6 7 6 6 9 9 2 2 5 5 8 8 9 9 9 0 0 0 0 0 0 9 9 9 9 0 0 0 0 0 0 9 9 0 0 0 9 0 0 0 9 9 9 9 0 0 0 0 0 0 1 1 2 2 2 1 1 1 1 1 2 2 2 2 2 2 2 2 2 n n n n n r p r p r p r p r c c c c c a a a a a u e e u e e u e e u e e u e M M M M M J J J J J D S D S D S D S D - - - - - - - - - - - - - - - - - - - r r r r r n t l n t l n t l n t l n t p p p p p u u u u c c c c c a a a a a A A A A A O J O J O J O J O J J J J J men women
Small unemployment response whichever way you look at it Unemployment rates 14 12 10 per cent 8 6 4 2 0 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 n n n n n n n n n n n n n n n n n u u u u u u u u u u u u u u u u u J J J J J J J J J J J J J J J J J - - - - - - - - - - - - - - - - - r r r r r r r r r r r r r r r r r p p p p p p p p p p p p p p p p p A A A A A A A A A A A A A A A A A men women
Employment rates falling but only marginally per cent 46.0 47.0 48.0 49.0 50.0 51.0 52.0 53.0 54.0 55.0 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 female employment rate Jul-Sep 1997 Apr-Jun 1998 Jan-Mar 1999 Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Oct-Dec 2004 Jul-Sep 2005 Apr-Jun 2006 Jan-Mar 2007 Oct-Dec 2007 Jul-Sep 2008
per cent 60 61 62 63 64 65 66 67 68 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 Jul-Sep 1997 male employment rate Apr-Jun 1998 Jan-Mar 1999 Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Oct-Dec 2004 Jul-Sep 2005 Apr-Jun 2006 Jan-Mar 2007 Oct-Dec 2007 Jul-Sep 2008
Things might get worse because hiring will fall vacancy rates 2.7 2.5 % of employment 2.3 2.1 1.9 1.7 1.5 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2
The Beveridge curve is shifting out a little probably due to redundancies (compare 2005-06 with 2007-08) the Beveridge curve 2.7 2001 2008 2.6 2005 2.5 vacancies 2.4 2004 2006 2007 2003 2.3 2002 2.2 2.1 2.0 4.5 5 5.5 6 6.5 unemployment
Relation between unemployment rate and long-term unemployment tight but some signs that 2008 is different long-term unemployment and unemployment rate (1992-2008, men and women separately) 60.0 y = 4.4722x - 0.8701 R 2 = 0.8368 50.0 % over 12 months 40.0 30.0 2007 2006 2008 20.0 10.0 0.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 unemployment
(may pick up in 2009 a little because of the rise in u in 2008) Long-term unemployment not rising % of total unemployment 10.0 20.0 30.0 40.0 50.0 60.0 0.0 Apr-Jun 1992 Jan-Mar 1993 Oct-Dec 1993 Jul-Sep 1994 long term (over 12 months) unemployment Apr-Jun 1995 Jan-Mar 1996 Oct-Dec 1996 Jul-Sep 1997 Apr-Jun 1998 Jan-Mar 1999 men Oct-Dec 1999 Jul-Sep 2000 Apr-Jun 2001 women Jan-Mar 2002 Oct-Dec 2002 Jul-Sep 2003 Apr-Jun 2004 Jan-Mar 2005 Oct-Dec 2005 Jul-Sep 2006 Apr-Jun 2007 Jan-Mar 2008 Oct-Dec 2008
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 better than US UK not doing too badly, about the same as eurozone, ������ �������� �������� ������� Change in unemployment rate y-o-y, Dec 2008 ������ ������� �������� ����� ����������� ������� ������� ������� ������� ������ �� �� �������� �� ��� !���� "�����#$ %������ &�'��(���� #�������) �*���� $+ ,������ ������ $� !������ &�������� &����� #������ � ���
Conclusion? • It’s a recession • But not a bad one for labour • Internationally UK not worse off than comparable countries • Eurozone still to show worst because of rigidities, slow response, slow recovery • UK should recover faster
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