The recession that occurred from December 2007 to June 2009 was dubbed “The Great Recession.” Here, the word “Great” is not meant to imply that the recession was a good thing. It wasn’t like, that recession was as great as the cake we had last night. More like, that recession was a great big pile of you know what.
The Great Recession was the worst recession since The Great Depression. And, one could have hoped that it could be another 80 years before another recession occurred of a similar magnitude. Well, I will leave it to Red from the The Shawshank Redemption to remind you about hope.
Judging by his depressing tone, maybe Red was an Economist. Anyway, the current recession may or may not be as long lasting as the Great Recession, but it appears to be both deeper and more unequal. Don’t believe me? Let’s give it a look in the data.
Two Recessions in One Picture
To make a figure that compares the two recessions, I start with data from The Current Population Survey and I identify people that can be followed for one year. I restrict the sample to people who were all working — either in September 2008 or April 2019. The workers are then tracked until September 2009 or April 2020 to see how many were unemployed (i.e., with no job but looking for work) or laid off (i.e., claimed to have a job, but did not work in the past week). The idea is to compare how many workers lost jobs in the two recessions.
To look at how unemployment hit workers across the income distribution, I then divided people into five equal groups, called quintiles. The first group is the lowest 20 percent of earners. The second is the second lowest, etc. So, the fifth quintile represents the highest 20 percent of earners. The comparison is not quite perfect. In September 2008, The Great Recession was in progress already, whereas the current recession had not started in April 2019. However, the collapse of Lehman Brothers occurred in September 2008, and precipitated a large rise in unemployment. So, I took it as the best one-year comparison for what we are facing now.
The figure below first shows that the current recession has resulted in bigger increases in unemployment/layoffs across the board. It also shows that the increase is much more unequal. People at the bottom have been hit nearly three times harder by the COVID recession as those at the top. During the Great Recession, it was only 1.5 times as hard.
We always hope that bad but very rare events are actually, you know, very rare. But just ten years after the Great Recession, we find ourselves in a deeper and more unequal recession. We can always hope that this one ends quicker than the last one. However, that will probably require good policy decisions…and what I’ve seen so far at the Federal level leaves me dubious. Sending out checks to everyone — including those who are still employed(!) — in the hopes that they will spend it at the businesses where they aren’t allowed to go didn’t make a lot of sense. And, the small business loan program hasn’t gotten off to a great start.
As I said a few weeks ago, making sure that the social safety net we already had functions appropriately is key. But, those systems — especially the unemployment insurance system — are struggling to keep up. And, making sure that the small business loan program is easy to use and not too complex would be wise. The evidence right now suggests that using the program is hard. You know who doesn’t have a bunch of high-paid lawyers to figure this stuff out? Small businesses. If we don’t do a better job, then old Red will be right, and any hope that this recession ends quickly will be ill-placed.