Friday, December 04, 2009

Economic recovery in Ohio to take years, demand action by politicians, OSU report says


Economic recovery in Ohio to take years, demand action by politicians, OSU report says

December 4, 12:32 PMColumbus Government ExaminerJohn Michael Spinelli
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COLUMBUS, Ohio -- Recessions from a generation ago are very different from today's Great Recession, so say a trio of researchers from The Ohio State University, who opined in their report on growth and change in Ohio that inaction by state leaders like Gov. Ted Strickland and lawmakers will only prolong what they predict is already shaping up to be a long jobless recovery.

Ohio families and communities will be further strained as the state tries to recover some of its manufacturing might lost since the 1970s, which has resulted in whole industries either never returning to their original levels of employment activity or being permanently destroyed.

If the recent past is our guide, Mark Partridge, Swank Professor of Rural-Urban Policy in the Department of Agricultural, Environmental, and Development Economics, who led the study with his two other co-authors, Xuetao Huang and Tripti Uprety, said the future economic recovery will be quite feeble, with very slow job creation. Partridge and company concluded that "this drawn out 'jobless' recovery will strain Ohioans and the communities they live in."

Previous job losses could cushion more job losses

The trio said it took 46 months for the nation to recovery from the last recession in 2001 but said Ohio's total employment never did recover. They said the damage to Ohio's manufacturing sector and the families and communities that once relied so heavily on it will have less adverse impacts now because, since 1970, the sector has been in serious decline.

Ironically, they say Ohio is much better placed to prosper in the long-run if it is able to make fundamental changes to enhance its economic potential. They warn, however, that wholesale change will require that the state let go of its traditional litany of excuses for its relative poor economic performance. Contrary to some who argue that the decline of the Detroit Three auto producers has particularly hurt Ohio over the last 40 years, the researchers show that Ohio’s so-called exposure to the auto sector is "simply not large enough to explain its poor performance."

Their research showed that Ohio’s recovery pattern tends to be more severe in downturn, and job growth tends to lag the nation in recovery. They caution that while Ohio’s job declines are still less than that in 1981-82, the labor market may need longer than 1981-82 to recover. The implications for Ohio’s businesses and governments is that it "may take many years for tax revenue to recover and for businesses to regain a good footing. "Many families will face prolonged challenges, which will spread to our broader communities," they wrote, adding, "Clearly, in going forward, Ohioans should plan on continued belt tightening."

The good, bad and ugly of "creative destruction"

The good news about the bad news about the painful loss of manufacturing jobs is that it's almost over because Ohio has lost so many manufacturing jobs that there really are not that many more to lose. "Even if Ohio were to lose every remaining manufacturing job (which it will not), there will be fewer lost jobs in manufacturing than what has occurred since the early 1970s. The upside of losing so many jobs manufacturing jobs previously is that Ohio "will be less sensitive to economic downturns than in the past due to the cyclical nature of manufacturing."

They say “creative destruction,” where the loss of declining industries frees up resources (labor and capital alike) to be employed in expanding and emerging industries by shifting resources to producing products that have higher returns increases living standards, is alive and well in Ohio.

Based on their results showing many lost jobs in Ohio will not return, their painful but sobering conclusion is that it may take many years for the "economy to return to something resembling widespread prosperity." For Ohio this means families and communities will continue to face numerous challenges for many years into the future.

As for government, they predict all levels of Ohio government "will have difficult times in balancing their budget, with resulting implications for important social services, education, and infrastructure provision." Moreover, continued shortfalls in education and infrastructure provision could "further impair future economic growth."

With manufacturing being one-third of what it was in the early 1970s, the bitter good news for Ohio is that the state may be breaking out of a pattern where its downturns are more severe than the country as a whole and its recoveries are sluggish.

Two cups of hope

The authors offer up one more cup of hope and caution for residents and political leaders. They opine that Ohio employers likely overreacted during the peak of the crisis during the winter of 2009 by laying off too many workers. Due to this overreaction, they say employers may have to re-hire workers faster to meet growing demand. But if recent trends continue, they warn again, Ohio’s labor market will be very sluggish for many years in the future.

For political leaders, they say it would be "an even bigger shame if the economic downturn further distracts Ohio’s politicians and leaders from making favorable structural changes that could avert many of these problems in the future."

The cost of inaction is that this long painful process will be followed by more painful restructuring. Happy holidays!

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