A decade after it started, the Great Recession has faded into memory. Corporate earnings and the stock market have fully recovered, with the financial sector thriving. The labor market has fully recovered, with middle-class earnings growing and the economy flirting with full employment. The government, at the state, local, and federal levels, has recovered too, and the economy is growing close to what economists think of as the fastest sustainable pace.
Yet, 10 years after the economy tipped into the deepest contraction of the post–World War II era, the Great Recession’s scars remain, as seen in academic studies and government figures, as well as the testimony of regional business experts and the families that lived through it. The country has rebounded in many ways, but is also more unequal, less vibrant, less productive, poorer, and sicker than it would have been had the crisis been less severe. And the extent of the scarring holds lessons for the politicians and policy makers who will confront the next recession, whenever it hits and however it starts.
Economists have long known that recessions cause hysteresis—a word derived from the Greek word for “scars”—in the labor market. Some workers do not rebound from a recession for years, if ever, their skills degraded and their earnings diminished. So too with the economy itself; a bad recession can make the unemployment rate higher for years and years, and permanently change a country’s potential for growth. Here, there are signs of that kind of scarring: The share of Americans between the ages of 25 and 54 who are working or looking for a job has dropped by more than a percentage point since 2007—a number that might sound minute, but translates into well more than a million people not participating in the current economic boom.