December 13, 2019
The Great Recession of 2007-2009 was one of the deepest downturns of the U.S. economy since World War II. Triggered by crises in the housing and financial markets, the recession evokes memories of homes in foreclosure, the collapse of Lehman Brothers, and bailouts for businesses in the auto, banking and financial sectors.
The subsequent expansion began in July 2009 and is now at 125 months and counting, making it the longest economic recovery dating back to the mid-19th century. Yet, homeownership and family wealth are struggling to rebound, and the presidential campaigns of Sens. Bernie Sanders and Elizabeth Warren manifest growing concern with economic inequities. A leading economist has labeled this an era of “secular stagnation.”
This is different from the more optimistic public mood of the 1990s, the only other time the U.S. experienced a decade-long economic expansion. Following a recession that coincided with the Gulf War of 1990-1991, the expansion sent the homeownership rate and family wealth on the way to record highs. Even as the public was witness to the dot-com bubble and the rise of AOL millionaires, the Occupy Wall Street movement would not emerge for another decade. Alan Greenspan, then chairman of the Federal Reserve, seemed to find the mood too buoyant, warning of “irrational exuberance.”
Comparing the two economic expansions
The recovery from the Great Recession fell short in lifting the incomes of many households. Overall, the median U.S. household income increased by 15% from 1991 to 2000, but by only 11% from 2009 to 2018 (estimates for 2019 are not yet available).
The disparity was much greater for certain groups. The median income of households with female heads increased by 37% from 1991 to 2000, compared with 13% from 2009 to 2018. For households headed by blacks, median income increased by 32% and 12% over the two periods, respectively.
Moreover, the gains in the current recovery have been so modest for some households that their incomes in 2018 are no higher or in some cases even lower than their incomes in 2000. For example, the median income of households whose heads had only a high school education was $54,400 in 2018, compared with $60,200 in 2000. The same is true of households whose heads had not completed high school or who attended college but not completed a four-year program. Households whose heads held at least a bachelor’s degree had a median income of $116,500 in 2018, about the same as in 2000. (Incomes are adjusted for household size and expressed in 2018 dollars.)
The most notable achievement of the post-Great Recession era is the decline in the unemployment rate from a near record high level in 2010 to a near record low level in 2019. The drop, from 9.5% in 2010 to 3.5% in 2019, was much greater than observed in the recovery in the 1990s, which went from 8.1% in 1992 to 4.6% in 2001 (estimates are non-seasonally adjusted and refer to the second quarter of each year from 2010-2019 and the first quarter of each year from 1992 to 2001).
The improvement in the unemployment rate for black and Hispanic workers during the recovery from the Great Recession is especially notable. The unemployment rates fell precipitously from 2010 to 2019 for both groups – from 15.5% to 6.1% for black workers and from 11.9% to 3.9% for Hispanic workers – and are currently the lowest on record. But, as it has been historically, the unemployment rate among black and Hispanic workers remains higher than the rate among white and Asian workers.
Despite the downward trend in unemployment, the recovery in other labor market indicators has been anemic to absent in the post-Great Recession era. The U.S. employment rate in 2019 – the share of the population 16 and older that is employed – is several percentage points lower than it was at the start of the Great Recession in 2007. The principal reason is the aging of the U.S. population. The first wave of Baby Boomers (born in 1946) turned 65 in 2011, an age at which participation in the labor force, either by working or looking for work, drops steeply. Research suggests that aging can account for most of the decrease in labor force participation and the employment rate since the Great Recession. Labor force participation among men is also in long-run decline.
In contrast, the expansion in the 1990s is associated with record-high levels for the employment rate and the labor force participation rate. Baby Boomers (ages 37 to 55 in 2001) were in the prime of their working years and labor force participation among women was at a historic peak around 2000, propelled in part by The Personal Responsibility and Work Opportunity Reconciliation Act of 1996. As demographic forces reverse course and the effects of welfare reform recede into the past, the U.S. labor force participation rate and employment rate appear unlikely to return to their turn-of-the-century levels anytime soon, even as the recovery from the Great Recession extends its record-setting duration.
Graphics by Michael Keegan and Chris Baronavski