CHAMPAIGN, Ill. – Whether a proposed jobs bill might carve into U.S. unemployment still languishing near double digits is anybody’s guess, a University of Illinois economist says.
The House last week approved a $15 billion measure now headed to the Senate that seeks to jumpstart employment by giving companies tax breaks for new hiring and write offs for equipment purchases, as well as ramping up federal construction spending.
But U. of I. economist Anne Villamil says gauging whether the initiatives might succeed is little more than speculation amid an apparent “jobless” economic recovery that has seen employment gains lag despite growth in other indicators.
“Economists do not yet fully understand jobless recoveries,” she said. “As a consequence, it is difficult to forge an appropriate policy response. Furthermore, even if there were agreement on a policy response, we need to pay for it.”
Villamil says recovery from the last two U.S. recessions in 1991 and 2001 were “jobless,” defying historical trends where growth in gross domestic product was soon followed by employment gains.
“There is great concern that labor market recovery from the recent recession will be anemic as well,” she said.
Jobless recoveries are rooted in part on structural changes in U.S. labor markets over the last two decades, Villamil said. Employers now use more temporary and part-time workers, and navigate economic shifts by using more overtime during expansions and trimming hours during downturns.
Employment growth from the latest recession promises to be slower than usual because the downturn followed a financial crisis, which typically make recessions more severe and hold back recovery, she said.
Despite ongoing adjustments in the financial sector, Villamil said, the nation’s real estate, construction and lending markets remain weak, curbing job growth prospects.
“Finally, the nation’s level of debt continues to be high, which further constrains policy response options,” she said.
Villamil studies financial contracts and the impact of inflation on public finance. She is a co-editor of the Annals of Finance and an associate editor of Economic Theory, the European Economic Review, and the Quarterly Review of Economics and Finance.
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