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WHY HAVE RECENT U.S. RECOVERIES BEEN JOBLESS? After two straight jobless recoveries, analysts are still trying to understand this new phenomenon. So far, their explanations fail to answer why both recoveries were jobless. “Jobless Recoveries and the Wait-and-See Hypothesis” is featured in the fourth quarter Economic Review. The three authors, Stacey Schreft, vice president and economist at the Federal Reserve Bank of Kansas City, and Aarti Singh and Ashley Hodgson, both former research associates at the Bank, offer a new explanation for jobless recoveries. In this follow-up to an earlier Economic Review article (“A Closer Look at Jobless Recoveries,” second quarter 2003), the authors revisit the behavior of employment across past recoveries. They find a common feature of jobless recoveries: the greater use of more flexible, “just-in-time” employment practices. The wait-and-see hypothesis suggests that flexible hiring practices—such as relying on overtime hours and hiring part-time and temporary workers—allow firms to more easily adjust output in the short term without hiring full-time, potentially permanent workers. This approach is especially effective around the troughs of business cycles, when uncertainty about the strength of the recovery runs high. Firms also may be willing to wait to hire until they see sufficient improvement in business conditions. If businesses see other payrolls shrinking, they may take that as a sign that business conditions have not improved—and they may wait to hire as long as other firms are doing the same. The result can be expansions with significantly delayed job growth. “Going forward, the popularity of JIT employment practices, especially in uncertain times such as recoveries, is likely to continue,” the authors write. “This suggests that future recoveries could be jobless or at least characterized by sluggish employment growth.” Both articles are available on the Bank’s Web site at www.kansascityfed.org. ### Return to
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