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For immediate release: January 27, 2010

Dallas Fed: A Severe Recession but Nothing Like the Great Depression

DALLAS—In terms of its toll on employment, the current recession exceeds all other post-World War II downturns—but the job losses have fallen far short of those in the Great Depression, according to the latest issue of the Dallas Fed’s Economic Letter.

Unemployment-rate effects in the current recession are significantly smaller in magnitude and depth than the Great Depression, according to Enrique Martínez-García and Janet Koech in “A Historical Look at the Labor Market During Recessions.”

Still, the current recession is unusual in the length and depth of its labor market impact, the authors say.

“It was the acceleration of job losses after October 2008 that transformed an otherwise average recession into the worst episode since World War II,” Martínez-García and Koech write.

Looking at the evolution of the unemployment rate post-World War II, the 1973 and 1981 recessions are most similar to the current recession, the authors state. The 1973 scenario warns that unemployment could remain elevated for a long time.

“The 1981 scenario offers a more optimistic outlook, with a rather quick employment recovery and return to prerecession unemployment levels less than three years after the start of the recession,” they say.

Martínez-García is a research economist and Koech is a senior research analyst at the Federal Reserve Bank of Dallas.


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