reovery-recession-picThe Great Recession was the worst economic downturn since the Great Depression. Not only did output and employment drop sharply, it was accompanied by an enormous shock to the United States’ financial system. To make matters worse, the “recovery” of output from the Great Recession has been extremely slow by any historical standards. Many have attributed this sluggishness to the severity of the downturn or the crash of the financial sector. However, looking at the data, employment has recovered strongly despite losses to the labor force, suggesting the main drag on GDP recovery is faltering labor productivity. According to the article in the Wall Street Journal by Robert J. Barro, professor of economics at Harvard University, the stimulus policies of the Obama Administration have exacerbated the productivity stagnancy, as it focused mainly on transfer payments, which do not increase productivity growth. He explored this idea due to the findings of a recent paper he coauthored that showed how sluggish the recovery has been and that poor productivity growth has been a main driver. It is thus disappointing that both Donald Trump and Hillary Clinton’s platform advocate restricting free trade and raising the federal minimum wage, both policies that add further drag on productivity growth. To return the US economy to its previous growth trajectory, our elected officials need to shift their focus from employment, which is at natural long-run levels, and stimulate productivity growth. Promoting free trade is the economic equivalent of advancing our technology of production; we are unequivocally able to produce and consume more when we can freely trade with other nations. If the Obama Administration and our new president inaugurated in 2017 focus on policies that effectively improve labor productivity, we will see the US economy leave behind its sluggish recovery and return to its original growth trajectory.

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