Ken Henry: Employment recoveries are never v-shaped

Via The Guardian:

You might think that the consequences of recessions are short-lived. The unemployment rate goes up for a short time, but subsequent strong growth quickly gets things back to normal. Not true.

The lessons of past recessions tell a different story.

The immediate economic case for minimising the loss of jobs in a recession is obvious: as workers lose jobs, their incomes fall, they consume less, and other businesses also shed workers. Without government action to boost demand, a vicious cycle is established.

But there is also a longer-term consequence. In past recessions, many who lost their jobs were never able to find another, even years later.

In the recession of the early 1980s the unemployment rate almost doubled, increasing from 5.5% to 10.5% in two years. The number of unemployed Australians increased by 330,000. An equivalent proportion of today’s workforce would be about 650,000. It took six and a half years, to the end of the 1980s, for the unemployment rate to claw its way back to somewhere close to where it started.

And there were other, deeper, consequences. During the recession of the early 1980s, the proportion of Australian males with a job fell by about 7%. In the subsequent recovery only half of that fall was reversed. And then Australian workers were hit with the recession of the early 1990s. Over the next three years, the proportion of males with a job fell by a further 10%.

Should never have become a wbanker Ken.

Houses and Holes
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  1. They could be. If everything was shut for 2-3 weeks, all debt due dates extended, ubi, and illegal to fire anyone – all by law – they’d bounce back quite quick.

    Christmas on steroids.

    But we’ve never tried that scenario.

  2. But have previous recessions ever seen the level of stimulus and bailouts that are currently occurring? How can we use previous models to predict a recovery when this has never been seen before…