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

Louis and Henry Epstein Professor of Business Administration at the Simon School of Business

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

Helen F. and Fred H. Gowen Professor in the Social Sciences

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

1 min

Covering the Conclave? Our Expert Can Help.

The world is watching the Vatican as cardinals from across the globe gather for the papal conclave. The monumental event, which involves cardinals closing themselves off in the Sistine Chapel to elect a new pope, is steeped in history, mystery, and speculation. The new pontiff will be expected to make difficult decisions about the future direction of the Catholic church, which has almost 1.4 billion followers worldwide, and address the Vatican's strained finances and its sexual abuse scandals. If you're a reporter looking for an expert who can provide valuable insight, perspective and opinion on any angle of the events unfolding in Vatican City, consider reaching out to Jack Downey, the John Henry Newman Professor of Roman Catholic Studies at the University of Rochester.  Downey and his scholarship have been featured in media outlets such as The Washington Post, National Public Radio, and Time Magazine. Simply click on his icon now to arrange an interview today.

1 min

Research Matters: Ultra-conductive molecule sets stage for post-silicon computing era

A research team has uncovered what it believes is “the world’s most electrically conductive organic molecule,” a discovery that opens new possibilities for building smaller, more powerful, and more energy-efficient computers. It could also allow computer chip manufacturers to eliminate their reliance on silicon and metal as conductors. “Molecules are nature’s tiniest, mightiest, and most configurable building blocks and can be engineered to build ultra-compact, ultra-efficient technology for everything from computers to quantum devices,” said Ignacio Franco, who was part of the research team that was led by scientists at the University of Miami. Their research was detailed in a paper published in the Journal of the American Chemical Society. The molecule, which is composed of chemical elements found in nature, including carbon, sulfur, and nitrogen, can carry electrical current over record-breaking distances without losing efficiency. Using molecular materials in electronic chips offers several advantages. They consume less power. They can be more easily customized than silicon. They are more environmentally friendly. And, perhaps most importantly to manufacturers, they are potentially cheaper to produce. “This molecular design overcomes many of the big issues that for decades have prevented the use of molecules in electronics,” Franco said. To learn more about this ground-breaking research, read about it at the University of Rochester News Center, and contact Franco at ignacio.franco@rochester.edu.

1 min

Hidden History of Bermuda is Reshaping the Way We Think About Colonial America

Early colonialism in the Americas tends to conjure images of Jamestown and Plymouth Colony. But long before settlers there acclimated to the New World’s growing conditions and overcame starvation conditions, an English settlement established in Bermuda in 1612 was wealthy and prosperous. University of Rochester historian and archaeologist Michael Jarvis has been uncovering the hidden history of Smith’s Island in Bermuda and its pivotal role in reshaping the understanding of colonial America. Nicknamed “Chainsaw Mike” by his students, he has spent 14 years excavating Smith’s Island and one of the first English settlements in the New World. Jarvis argues that Bermuda’s role in supplying Jamestown with food and influencing early colonists make it a cornerstone of America’s origin story rather than the historical footnote to which it has largely been relegated. His research on Smith’s Island was recently the cover story of Smithsonian magazine and was featured on the History Unplugged podcast. Jarvis is an expert on colonial America, the international and intercolonial networks of trade at the time, and settlement patterns in eastern North America, Bermuda, the Bahamas, and the communities surrounding European gold- and slave-trade forts in West Africa. He can be reached at 585-275-4558 and michael.jarvis@rochester.edu.

View all posts