Posted by: Jeff | October 6, 2010

Explaining the Link Between Economic Growth and Unemployment

Ezra Klein highlights a graph that helps explain why unemployment doesn’t necessarily drop with a return to consistent economic growth.  As the graph shows, once real economic output falls below potential (output at optimal levels of efficiency and employment), it takes a fairly significant rate of growth to catch back up. This is why, even at rates of economic growth of 3% over the next ten years, unemployment will just reach 5% (the pre-crisis level) in 2020.

The scariest part of this graph?  If the economy grows at a rate of 2% over the next ten years, unemployment will actually increase to 11.9% by 2020.  In the last quarter, the American economy grew by an annual rate of 1.7%.  A return to growth is good, but we still have a long way to go.

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  1. […] platform. The economy sucks, and the Democrats did a really horrible job of explaining how without the stimulus the economy would have sucked even worse. They deserved to get hammered a […]


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