Kathleen Stephansen, chief economist and MD of US-based Aladdin Capital Holdings, questions the received wisdom about jobless recoveries

Kathleen Stephansen, chief economist and MD of US-based Aladdin Capital Holdings, questions the received wisdom about jobless recoveries

It’s common to say that unemployment is a lagging economic indicator, but I think that’s too cavalier a statement. We may have become accustomed to ‘jobless recoveries’, particularly in the US and the UK, but it’s not so easy to move from a recovery phase to a virtuous circle of increasing employment and solid growth.

There are various reasons for this. People get discouraged from looking for work, so it’s difficult to turn unemployment around very quickly. Corporations expect lacklustre consumer spending from households repairing their finances post-credit crunch, so they’re likely to hold back on aggressive rehiring. But the biggest problem is retooling the labour force, and no government is really zeroing in on this. It takes time for a person who has spent their career in finance, for example, to train and find a job in a new industry.

It’s difficult to compare this with past recessions. The global workforce has almost doubled in the past 20 years because of globalisation. Capital and jobs have flowed to where labour is cheap, improving corporate profits but squeezing labour income. So we entered this crisis in a weak position for labour in general. People don’t have the means they need to retool quickly and efficiently.

Corporations may extend working hours and employ temporary workers as recession recedes, but these are not the ingredients for a full-blooded recovery. Developed nations need to act now to wean their economies off dependence on credit and consumer spending and prepare for a structural change where there is more balanced growth between sectors, with a greater emphasis on healthcare, green industries, infrastructure and technology.