Friday, September 13, 2013

The "Clinton" miracle of the late 1990s.

For a long time, I've thought that President Clinton was extremely lucky when it came to issues of macroeconomics (inflation and unemployment) in the late 1990s. It wasn't his policies (reducing the government deficit) which led to low unemployment during this period. In fact, reducing the deficit raises unemployment, unless something else happens to counteract that effect. And something else did happen. First, international trade competition and faster productivity growth kept inflation down. Second, the Fed's Alan Greenspan (who really ran the economy back then, to the extent that it can be "run") allowed unemployment rates to go down since he feared inflation less.

But it turns out that the low unemployment rates of the late 1990s were not as lucky for working people as has been advertised. It's true that the official unemployment rate fell from about 7.5 percent in 1992 to about 4.0 percent in 2000 (before rising due to the recession of 2001). But from the point of view of employed workers, the average cost of losing one's job stayed high and roughly constant during the 1990s, at about 27% of average pay. The culprit which caused this high rate is the fact that the unemployed suffered from longer "spells" of joblessness, threatening the employed. That has pretty much the same effect as higher unemployment rates on the cost of job loss. This fact explains why Greenspan saw U.S. workers as "traumatized" (keeping them from demanding higher wages and benefits). Of course, the general decline of unionization rates among private-sector workers also had this traumatic effect.

(On the numbers, see the article by Matthews and Kandilov in the Eastern Economic Journal in Spring 2002.)

-- Jim Devine

1 comment:

Unknown said...

I recently came across your EconoSpeak blog and really enjoyed all the posts especially this one about the Clinton years.

I have an animated graphic that I think illustrates the US national debt crisis and was wondering if you would be interested in posting it on your blog, as it may be something that would interest your blog readers.

Here is the link that we would ask the graphic link to:

Graphics like this add to the multimedia experience of websites. Feel free to post it within existing articles, as it just adds an additional element to the visual experience. Please let me know if you are interested in posting the graphic and I will send you details and instructions on placing it on the website. Thanks again for your consideration.

I look forward to hearing from you.

Bryan Baker