Featured Post from University of Rochester

The Great Recession: The downturn that wouldn’t end

Nov 8, 2019

3 min

Narayana KocherlakotaLisa KahnDavid Primo

The Great Recession ended 10 years ago, but University of Rochester economist Narayana Kocherlakota says it is still very much with us.


David Primo, associate professor of political science and business administration, agrees that the country continues to feel the effects of the recession, though his take differs from Kocherlakota’s.


And Lisa Kahn, a professor of economics at the University of Rochester, sees another lasting effect from the Great Recession.


“Unemployment is very low right now, leading people to think that we’ve recovered,” says Kocherlakota. “Income levels, however, are now as much as 15 percent below where they might have been, if not for the recession.”


Many economists blame the income slowdown on a natural decrease in the rate at which new ideas are discovered. But Kocherlakota, former president of the Federal Reserve Bank of Minneapolis, attributes it to something else. “Businesses don’t want to lock up money in physical investments because they’re nervous about another Great Recession,” he says. “That’s why there’s less innovation, and that’s why we have an income slowdown.”


The Great Recession began in December 2007 after the bottom fell out of the US housing market. That was followed by a shortage of assets in the financial markets and the collapse of the financial sector, including banks, credit card companies, and insurance companies. The recession, the worst in the US since the Great Depression of the 1930s, officially lasted through June 2009, though unemployment levels didn’t peak until October of that year.


According to Primo, the losers were homeowners, among others. The banks, which many observers say bear some responsibility for the recession, were bailed out by the government, while homeowners were not. That perceived double standard has led to the Occupy Movement, support for Democratic presidential candidate Bernie Sanders, and the election of Donald Trump, according to Primo.


“Economists may be 100 percent correct in saying it was necessary to bail out the banks,” says Primo. “But that’s a difficult political argument to hear if you lost your house, while banks were bailed out.”



Says Kahn: “Many firms take the opportunity provided by a recession to introduce technologies that reduce their reliance on workers. In the old days, we had bank tellers giving out money; now machines can do that,” she says. “In manufacturing, we’re shifting more and more to machines instead of workers. And a lot of that shift takes place during recessions.”


Kahn points out that wages and employment have been falling for the last 30 years in exactly the types of jobs that are increasingly performed by machines.


Kahn identifies an additional recession-related phenomenon, one that specifically targets college graduates. “It has always been bad to graduate during a recession,” says Kahn. “But the lost earnings from the Great Recession are much larger than they were in previous downturns, and it’s something that will stay with them long term.”


Not only are fewer jobs available, the graduates find themselves competing against experienced workers who had recently been laid off. The net result is persistently lower wages.

Connect with:
Narayana Kocherlakota

Narayana Kocherlakota

Lionel W. McKenzie Professor of Economics

Professor Kocherlakota's research includes theoretical and empirical contributions to many fields in economics

Central BanksU.S. Federal ReserveDynamic Games/ContractsFinancial EconomicsEconomics of Money and Payments
Lisa Kahn

Lisa Kahn

Professor of Economics

Kahn's research focuses on labor economics with interests in organizations and education

Economic DownturnsContract TheoryEconomics of Organizations
David Primo

David Primo

Ani and Mark Gabrellian Professor, Professor of Political Science and Business Administration

An expert in American politics; campaign finance; corporate political strategy, social responsibility & fiscal policy; & airline industry.

Airline IndustryAirline BusinessElection LawFederal Tax PolicyPolitical Gridlock

You might also like...

Check out some other posts from University of Rochester

2 min

Finding your college fit

With the college admissions application season in full swing, Robert Alexander, University Dean of Enrollment Management at Rochester, offers some perspective for all high school seniors as they begin to navigate the process and ultimately make a decision that is a match made, not a prize to be won. "When considering academic fit, don’t spend a ton time, energy and money trying to reverse engineer a way to game the system to find your way in. You don’t want to end up somewhere and find that you’re struggling just to keep your head above water, or that you’re swimming with sharks in a cutthroat and competitive environment. Once you identify a few characteristics that are important to your fit, then you can broaden your aperture to a range of schools that meet some of those parameters—the right size, campus type, focus, selectivity, and academic programs offered. "When it’s time to start filling out college applications, discern how you’ll tell YOUR story: in your essay or short answer responses; in how you determine which teachers you’ll ask to write recommendation letters; and in topics you raise in an interview. Remember, colleges aren’t looking for a single perfect archetype student, but rather a diverse array of students who are interesting in different ways. In fact, more important than someone who might be the “perfect applicant” is someone who acknowledges they’re not flawless, but wants to strive to become better. Find ways to convey what’s authentically you, emphasizing your strengths, but including some areas where you want to grow and change, and maybe some vulnerabilities, too. "As far as financial fit, don’t eliminate any college that seems like a great fit for you just because of the published sticker price. Colleges are required to have a net price calculator on their website. But the only way to know your exact cost is to apply for admission, academic merit scholarships, and federal and state grants."

1 min

Repairing Boeing's relationship with the FAA

The Boeing Corporation is the recognized pioneer in aviation and aircraft manufacturing, but significant quality control concerns have mounted in light of near disasters associated with Boeing's planes, including notably the Alaska Airlines door flying off in January. David Primo, professor of political science and business administration at the University of Rochester, is available to tackle some of the regulatory, crisis management and reputational questions related to Boeing's safety and production problems, including regaining the trust of the Federal Aviation Administration: “The challenge Boeing faces is how do they rebuild safety, rebuild the relationship with the FAA, but keep the business going? And that’s a very tough balancing act. The FAA is going to give Boeing much less in the way of the benefit of the doubt when it comes to the design of planes, which could very much constrain its production system. So it’s going to mean that planes might take a little longer to get off the production line and into the hands of airlines."

1 min

Can political polarization threaten American democracy?

Partisan hostility in the United States is at a fever pitch and is a dominant theme in the 2024 election cycle. But how much does it matter to everyday life in America? What is really at stake? James Druckman, a professor of political science at the University of Rochester who is widely considered one of the country's foremost experts on political polarization and its impact on American democracy, is poised to answer those questions and back up his conclusions with data.  His latest book, Partisan Hostility and American Democracy: Explaining Political Divisions and When They Matter, outlines the potential consequences of extreme partisan animus by distilling empirical evidence gathered between 2019 and 2021. The upshot? Partisan hostility alone is unlikely to lead to the collapse of American democracy. But it nonetheless has a deleterious effect on democracy and could erode democratic institutions and functioning over time. In the end, the book concludes, American democracy hinges more on how political leaders respond to the polarization than the polarization itself.  Druckman has been cited by The New York Times columnist Thomas Edsall as among the political scientists in the country "working on getting us to hate one another less." 

View all posts
Powered by