RCR Defined
A different type of recession
What is a Resource Constrained Recession? It is a recession unlike the modern world has experienced. The economic activity can actually decrease (lower levels of GNP) or any measure of economic activity (for example, total retail sales or total home sales), but the unemployment rate stays relatively constant. How can this happen? It is near impossible if the number of employable people is increasing. However, if the employment pool is DECREASING, then you can have lower levels of economic activity and LOWER levels of unemployment.
The best historical example is the medieval period where the plague decreased population by 30%. When the population falls, total economic activity is likely to fall. But the unemployment rate could ALSO fall. This event can be called a Resource Constrained Recession (RCR).
Clearly the economic policies that work with rising numbers of employees will not be the same of the number of possible employees is FALLING. In a traditional recession, people become unemployed and complain to the political system. As a result, a ‘jobs program’ becomes the go to solution. But in an RCR, a jobs program will have almost no impact and maybe a negative impact. Everyone already has a job, and you will only create inflation. The problem is not of unemployment, but of a decrease in economic activity. The problem of lower numbers of possible employees will require different solutions than a more traditional recession.
The United Sates is likely to face a decreasing level of economic activity, but very low unemployment rates. The number of unfilled jobs is very high. As a result, you can have decreased economic activity with no increase in unemployment. There are two ways to measure the level of economic pain for the average person: the unemployment rate and the delinquency rates on debt. Currently both are very low. The consumer is nowhere close to defaulting on debt, because the number of unfilled jobs is so high. Get laid off? Go find a new job (11 million unfilled jobs).
Some examples may help. Recently on a trip I went to a small town for lunch. The local burger place had an hour wait. The local Subway had room for 6 employees and only 2 on the job. The Subway had a line out the door! The point is economic activity is being constrained by the available labor, not a lack of demand. The total number of lunches served is lower than pre-pandemic. Economic activity is falling, but the level of unemployment in this town is FALLING. Thus, economic activity might actually FALL, because businesses cannot hire enough people! That is an RCR.