On Monday the Committee for Economic Development (Ceda) tweeted a summary of its latest discussions in Canberra at the State of the Nation conference and asked: “Does Australia need a recession?” I am not suggesting Ceda is saying we do need one, but the question is uttered every now and then, and I think it is worth answering:
Hell no.
To an extent, you can understand why people might think a recession would do some good – shake us out of our apathy. But cripes, there is little more apathetic than being so cavalier about a recession.
Obviously, with distance comes a blurring of memory, and perhaps a forgetting of what recession means. And you can understand why people forget – because most have no idea.
Literally 60% of the current workforce was not old enough to work when the last recession hit 29 years ago in 1990.
Unless you are in your late 40s you have no idea what it is like to see jobs (and likely yours) evaporate around you. And given that in 1990 only half of people aged 15-19 were employed, chances are, even if you are under 50, you weren’t working when the last recession hit.
At the time I was a student working a pretty easy casual kitchenhand job at my university boarding college.
When I graduated in 1994, the unemployment rate of 20-24 year olds was 12% – at least better than the 17% it hit in 1992, but a fair way above the current level of 8.5%.
What does the difference between 8.5% and 17% unemployment mean? Given there are currently 119,000 people aged 20-24 unemployed, it would mean double that number out of work.
That extra number alone would take the overall unemployment rate from 5.3% to 6.1%.
But while recessions always hit the youngest first, they are never exclusive to them.
The usual (and in my opinion dumb) measure of recession is two consecutive quarters of negative GDP growth (seasonally adjusted). I think we should also take into account unemployment and look at occasions when the prime-age unemployment rate – people aged 25-64 – rises by a significant amount in a 12-month period.
In the 1982-83 recession the unemployment rate for 25 to 64-year-olds rose three percentage points from June 1982 to June 1983; in the 1990s recession it rose 2.5% points at its worst stage.
Even during the GFC of 2008, the unemployment rate for prime-aged workers rose by 1.3% points. If, as some economists believe, a 12-month rise of more than 1% point is enough to suggest a recession, then there is an argument to be made that we had a small one in the GFC:
But we don’t call the GFC a recession – though maybe if we did we would be less carefree about what having one is like.
We did, however, largely avoid calamity then. When people ask me why it is so important to avoid a recession, I like to point them to the comparison of the employment rate in Australia and the US.
Prior to the GFC, the same percentage of Americans and Australians aged 15-64 were employed. The US rate then fell by over five percentage points, whereas Australia’s dropped about 1.5 percentage points.
The US has never returned to the pre-GFC peak; Australia is now well above it:
Recessions not only wreck the economy and lives; they utterly change society.
One way to look at this is to observe the change that recessions have on the work of men in their 40s – that age when usually they have children and are nearing the peak of their earning ability.
The 1982 and 1990s recessions and the GFC saw falls in the percentage of men in their 40s in employment, from peaks that have never again been reached:
For men in their 40s working full-time, the impact is even more stark:
When the 1990s recession hit, 85.4% of men in their 40s were working full-time. By 2008, after the mining boom had reached a new 15-year peak, it was just 80.4% – a difference equivalent to around 110,000 fewer men working full-time in 2008 than would have, if the rate had stayed at 1990 levels.
Many men in their 50s never worked again after losing their jobs in the 1990s recession. In 1994 the median period of unemployment for a 45- to 54-year-old was 46 weeks – which means more than half of the unemployed of that age were unemployed for longer.
Consider that in 1988, 82% of men aged 50-54 were employed, and yet five years later just 65% of men aged 55-59 were working. That is a lot of men on the employment scrap heap.
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Recessions, of course, also hit household living standards. And yet here is a case where we do not really need to experience a recession to find out what it would be like.
As I have noted, the gross household disposable income per capita is now back at 2011 levels – and has been falling since the September 2014 peak:
That is actually rather like a recession.
The only difference is that the fall is generally faster and sharper in recessions.
In the second half of the 1970s household disposable income fell 3.5% in real terms before recovering to the pre-recession peak after two and half years. The 1982-83 recession saw a 2.8% fall but only a year and half to recover.
The 1990s recession was hell. Household incomes fell 3.5% from the pre-recession peak and took four years to recover.
But right now we are nearly five years away from September 2012 levels. We have not seen a sharp fall in living standards, but instead a long slow slump, with no sign of recovery.
A recession now would utterly destroy any change of returning to the living standards of 2012.
We don’t need a recession, take it from me – they are horrific things, and anyone suggesting they are needed should do everyone a favour and remove themselves from public discussion.
• Greg Jericho writes on economics for Guardian Australia
