Half of U.S. may endure "lost decade" of depressed employment

At the current pace of improvement, employment rates across the U.S. won’t return to normal levels until the 2020s, “amounting to more than a relative ‘lost decade’ of depressed employment for…half of the country,” University of California, Berkeley, economist Danny Yagan wrote in a working paper posted this week on his website. He said the research paper soon will go through peer review.

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Recessions hit some places harder than others, and recovery doesn’t necessarily mean every place recovers all the jobs that it lost. Instead, unemployment rates can come down to prerecession levels as job seekers leave distressed regions and move to economically healthier areas of the country. “A state typically returns to normal after an adverse shock not because employment picks up, but because workers leave the state,” economists Olivier Blanchard and Lawrence Katz wrote in a 1992 paper.

This time might be different in some ways. Three economists wrote in a National Bureau of Economic Research working paper last year that compared with the prerecession years, mass layoffs after 2007 prompted a “muted” migration response and many workers instead dropped out of the labor force. Falling labor-force participation has been a worrisome hallmark of the U.S. economy in recent years, though the recession’s damping effect on workforce participation appears to be fading as the economy gains strength.

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