How Much Do We Understand about the Modern Recession?

modern recession is one occurring in an economy with well-executed mon-etary policy and a small fraction of the labor force on the factory floor. I review the facts about modern recessions and compare them with earlier recessions, with primary emphasis on the labor market. The facts are per-plexing: employment falls in modern recessions at least as far as in past recessions, without identifiable driving forces. Economists ’ understand-ing of the modern causeless recession is at an early stage, but progress has occurred and the future of this area of research seems promising. Facts about Modern and Earlier Recessions The first important fact about modern recessions is that they are about as severe when measured in employment losses as earlier ones, leaving aside the Great Depression. Figure 1 shows deviations of total employment from its trend since 1948, and table 1 shows the percentage decline in employ-ment associated with each of the ten recessions of the past sixty years. (The identification of recessions follows the standard chronology as deter-mined by the National Bureau of Economic Research Business Cycle Dating Committee, but the dates are for the peaks and troughs in detrended employ-ment, not the National Bureau’s dates for peaks and troughs in economic activity.) The two modern recessions rank second and sixth in employment decline. Plainly the “Great Moderation”—the broad reduction in economic volatility of the last couple of decades—is a feature not of employment