Phased Recessions

Matt gives a quick primer on the Employment-to-Population measure, an important metric that indicates how much of the population is participating in the workforce, either by working or looking for work (folks forget that our unemployment data doesn't count those who've given up on the job market and ceased searching). Brad DeLong, for his part, notes that "the employment-to-population ratio is usually a lagging indicator--it doesn't start to decline significantly until after a recession is well under way," and, as you may have guessed, we're all talking about this because it's been declining.

So is there a recession underway? Sort of. As a labor economist I was listening to on the radio the other day put it, low-income workers have been experiencing what looks like a recession for awhile now, middle income workers are beginning to, and high income workers simply aren't. This is, in other words, a phased recession, and one reason you don't hear that much about it is it's not something you see if you're, say, an affluent journalist, television personality, or newspaper columnist and mainly know others within your class.

This is, it should be noted, a direct effect of inequality. Think of the income distribution as a long staircase. Income inequality lengthens it, not only by adding more steps, but by increasing the horizontal plane between steps. And in this case, the implicit imagery of trickle down economics -- money as water -- is helpful. Economic growth starts at the top, and the longer it has to travel, the more likely it runs out of momentum fairly high up. That's why you see gains pooling in the top few percent, while the bottom four quintiles get next to nothing, and in fact have seen some losses.

Recessions (particularly those not based in stock market bubbles) start at the bottom and travel upwards. And inequality does its magic again, this time concentrating their effects at the base and making it harder and slower for them to travel all the way up to the top. This is very good for the rich, but very bad for the poor, who'll not only suffer more, but will have to wait longer for any national action, as those who control the agenda won't feel the effects for quite some time.