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During the recession of 2008–9, labor hours fell sharply, while wages and output per hour rose. Some, but not all, of the productivity and wage increase can be attributed to changing quality of the workforce. The rest of the increase appears to be due to increases in production inputs other than labor hours. All of these findings, plus the drop in consumer expenditure, are consistent with the hypothesis that labor market distortions were increasing during the recession and have remained in place during the slow recovery. Producers appear to be trying to continue production with less labor, rather than cutting labor hours as a means of cutting output.

Inflation-adjusted spending on means-tested subsidies has increased sharply since 2007, and most of the growth was due to changes in eligibility rules, and increases in subsidies per eligible person, rather than increases in the number of people who would have been eligible under pre-recession subsidy rules. In 2007, the non-elderly parts of the safety net paid about $10,000 in benefits per person-year that non-elderly heads of household or spouses were unemployed. By the end of 2009, the annual subsidy rate per person-year unemployed was up to $16,000. As a result, the average private returns to employment are substantially less than they were in 2007. One result of the chapter is a monthly time series for the overall safety net's marginal income tax rate from the point of view of the average marginal worker.

This chapter estimates impacts of the expanding social safety net on the major macroeconomic variables—including GDP, consumption, investment, and labor hours—in a dynamic economic model with capital accumulation. Much of the aggregate changes in the labor market since 2007 can be interpreted as the result of changes in marginal tax rates or an impulse with similar characteristics. Moreover, the marginal tax rate changes coming from safety net expansions were enough to generate changes in the major macro aggregates that resemble the actual changes in direction, amount, and timing. The neoclassical growth model also offers an unconventional causal interpretation of the sharp drops in consumption, investment, and capital market values during 2008: the drops were, largely, a reaction to, and anticipation of, labor market contractions created by the expanding social safety net. In this view, it is incorrect to attribute the labor market contraction to drops in investment and consumer spending.

This chapter introduces one of the book's major conclusions by presenting a supply and demand model of the labor market that includes total factor productivity, population growth, wealth effects, population aging, and various labor market distortions as important variables affecting market outcomes. Using Chapter 3's self-reliance rates to examine some of the consequences of changes in redistribution, this chapter concludes that at least half, and probably more, of the drop in aggregate hours since 2007 would not have occurred, or at worse would have been short-lived, if the safety net had been constant. The chapter relates supply and demand parameters to household level econometric studies of labor supply and unemployment duration. It also addresses a number of misconceptions about labor market equilibrium analysis such as the income maximization fallacy, and the claim that supply-induced recessions should be characterized as pleasant experiences for the unemployed.

This chapter shows that employment and hours changes 2007–10 were not uniform across demographic groups, but rather fell in amounts related to changes in log self-reliance rates. Self-reliance rate changes tended to be less for persons who were capable of earning a lot and for members of dual-earner or childless households because they were less likely to qualify for safety net programs. Self-reliance rate changes were also less for elderly people. Meanwhile, hours per capita tended to fall more for less educated groups, and tended to increase for elderly people. A more surprising finding is that work hours fell significantly less for married people, even when controlling variables related to demographics and industry. The marital status gap is especially large among women. The education pattern of work hours changes varies by marital status, as predicted by the theory that the expanding social safety net was a major force reducing aggregate work hours.

To help understand the causes of the recession and slow recovery, Chapter 1 advocates a residual analysis: estimation of what would have happened to work hours and other major economic variables if productivity, willingness to work, labor income tax rates, and labor market regulations had remained constant. The residual labor decline that remains after correcting for labor market fundamentals, and therefore the amount and dynamics of the labor decline that might be attributed to impulses outside the labor market, is expected to be different from the total labor decline because the labor market fundamentals were not constant after 2007. The federal minimum wage was hiked three times. “Baby boomers” began reaching retirement age, but many with less wealth than anticipated. Most important, marginal labor income tax rates increased. The chapter outlines the book as it quantifies marginal tax rates and other labor market fundamentals and their consequences for the economy.

The most recent uses of tax rebates to households in the United States to combat a recession were in the summer of 2001 and the summer of 2008. Several studies published in the year following each rebate claimed that the rebates did not work. But the study using the best methodology and the best data to analyze the impact of the 2001 tax rebate estimated that consumers spent about one-third of the tax rebate within three months and spent about two-thirds within six months; and the study using the best methodology and the best data to analyze the impact of the 2008 tax rebate estimated a slightly larger and faster response. Another study of the 2008 tax rebate using good methodology and data estimated roughly the same response as the other two studies. I summarize the estimates of these three studies this way: consumers spent about one-third of the rebate within three months and about two-thirds within six months. This chapter reviews the major studies of the 2001 and 2008 tax rebates.

This chapter raises issues about welfare-to-work policies and how they are currently evaluated. It first explores the influence of the 2008/09 recession in terms of different groups in the labour market and social cohesion. The chapter then questions the conditional welfare and the ‘work first’ policy. After this, it considers the wider outcomes and how a more holistic approach to evaluation could be developed. Problems were already emerging before the 2008/09 recession really started to bite in terms of unemployment. During the 2008/09 recession, it became more difficult to justify the lack of focus on the demand side. An alternative approach to policy and frameworks for evaluation is described. It has been argued that, if long-term unemployment is really going to be reduced, the focus on the supply side is insufficient and must be combined with an increased focus on the demand side.

This chapter examines child poverty. It evaluates the evidence on child poverty under New Labour and during the recession of 2008–09. It illustrates the modest progress made by Labour governments in reducing child poverty during its time in office and points to the protective effect during the recession of Labour's macroeconomic and benefits policies. It notes that the government's anti-poverty strategy relies heavily on substantial job growth in the private sector. It concludes that children in low-income households have suffered a ‘treble blow’: the continuing impact of the recession, the need to reduce the structural deficit and the arrival of a new government committed to particularly steep cuts to public spending and placing a lower priority both on income poverty and on children.

This chapter analyzes Mayor Michael Bloomberg's financing strategies and tracks how they changed over time, growing in understanding on how the city could be structured financially for its long-term fiscal health. It discusses Bloomberg's ideas about urban finance that matured as he gained experience in raising and spending New York City's resources, even while dealing with major fiscal crises. It also refers to Bloomberg's limitations on his powers as compared to those of the governor and the federal government, noting that his insufficient power was relative to that of entrenched labor unions. The chapter emphasizes Bloomberg's impressive achievement of balancing the budget while he held the reins of government after the 9/11 attack, the 2008 recession, and Hurricane Sandy. It describes the first set of strategies Bloomberg adopted before the 2008 recession and the second set after it.

This chapter discusses the impact of the deep recession of 2008–9 on the UK labour market. It examines the UK's preservation of high employment during the recession, noting that it differed from other countries such as the United States and Ireland. In particular, it explains how the UK achieved a smaller fall in employment through the recession. The chapter also examines the performance of vulnerable groups, which include the disabled, ethnic minorities, and single parents.

The text on Social Division and Resentment in the Aftermath of the Economic Slump analyses the social repercussions of the Great Recession, engulfing the rich world in a similar fashion from 2008 onwards as did the Great Depression of the 1930s. The arguments put forward in this study challenges the standard definition of the recession, the rhetoric of all, the One Nation and Big Society by highlighting the experiences of the few and the social repercussions associated with austere times. First, the definition of the recession (as two successive quarters of negative growth) fails to capture the harsh realities of those affected or the destructive social impact of austerity. Second, as the worst economic slump since the Second World War the recent economic downturn is adequately labelled the nastiest recession to date as it hit groups, already fighting socio-economic vulnerability, disproportionately, due to welfare cuts and squeezed incomes. This, alongside the unequalising trend of wealth increase relative to GDP over time and persisting hard time experiences despite signs of a recovering economy since 2014. Third, the rhetoric of being in it together appears incorrect at best and the notion of shared experiences and burdens implied by the One Nation rhetoric strays far from our material. In sum, empirical findings highlight social relations being undermined by austerity as social division, resentment and isolation follow the aftermath of the economic downturn. The most salient pattern of the material point towards resentment between those in work – resenting the benefits of those without work; and those without work on benefits resenting other sub-groups on different benefits.

This chapter sets the context for the book, explaining the major shift in Chinese foreign policy at the time of the 2008–09 global recession. A literature survey is included and the rationale for the structure of this volume is explained. The books include three functional chapters (covering national security, economic and technology policy, and diplomacy), which begin the analysis. Six regional chapters follow, showing how China’s recent policy changes are designed to fit circumstances in different parts of the world.

This introductory chapter sets out the book's purpose, namely to discuss the performance of the labour market in the United Kingdom in the recession period of 2008–9. It also notes the rapid growth of wage inequality in the UK and the variation of job prospects based on education, region, age, gender, and ethnicity. It reports that despite the expansion of inequality, about half a million children were raised from poverty during the decade following the 1997 labour government.

This chapter argues that although future global volatility is clearly a major issue for investors and policy makers, the more pressing challenge is how the global economy may recover from the great recession of 2007–2008. The financial sector still has major weaknesses, with leverage remaining high and many large banks still suffering from severely impaired balance sheets. Moreover, the legacy of large deficits and growing levels of government debt coming out of the crisis pose their own threats, as the unfolding of the European debt crisis illustrates. The chapter predicts that growth rates in emerging economies are likely to slow down, if only due to the pressure of rising global demand for commodities and energy.

The 2008 economic recession is a primary example of popular social scientific authority helping manufacture a crisis. In the run-up to the recession a dominant, a vulgarized form of economic “science” taught millions of Americans that free-market policy was simply the objective, rational, and neutral way to build an economy. This chapter traces the rise of this popular form of economic authority and the way it pervaded political discourse through figures such as Friedrich Hayek, Milton Friedman, and Steven Levitt. One of the key metaphors of this scientistic approach to economy was that markets functioned like spontaneous equilibrium machines. This chapter critically scrutinizes the school choice or voucher movement as a case study for the overextension of free-market economic authority in the restructuring of democratic life. The result has been increased inequality.

This chapter examines whether the justificatory theory of international law provides guidance to regulators. It considers how the focus on shared expectations rather than formal laws enables the theory to accommodate important methods of stabilizing international activities in the absence of international laws. In particular, it examines the global recession of 2008, and contrasts the regulatory failures in 2008 with the ongoing efforts of the Financial Stability Board convened by the G-20's central bank governors.