Financial-Crisis Recoveries, Compared

As mentioned in a previous post, the United States job market recovery has been anemic, but recoveries after financial crises have historically been even worse.

Via Joshua Lehner, Oregon Office of Economic Analysis. Underlying data come from Organization for Economic Cooperation and Development and United States Bureau of Labor Statistics. Most recent data point for United States uses the October/November average, as the numbers are plotted quarterly.

The chart above is an updated version of one that Joshua Lehner, an economist at the Oregon Office of Economic Analysis, posted last year. As you can see, job losses lasted much longer in the aftermath of the financial crises that hit, among others, Finland and Sweden in 1991 and Spain in 1977, as well as the United States during the Great Depression.

“The current cycle actually compares pretty favorably,” Mr. Lehner wrote. “This is likely due to the coordinated global response to the immediate crises in late 2008 and early 2009. While the initial path of both the global and U.S. economies in 2008 and 2009 effectively matched the early years of the Great Depression - or worse - the strong policy response employed by nearly all major economies - both monetary and fiscal - helped stop the economic free fall.”

The United States Treasury posted a similar chart (Slide 8) last year.

As mentioned before, the Harvard economists Carmen Reinhart and Kenneth Rogoff have extensively studied how economies have bounced back (or not) after financial crises throughout history. Over the course of a dozen financial crises in developed and developing countries going back to the Great Depression, the unemployment rate rose an average of 7 percentage points over 4.8 years, they found in a 2009 paper.