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Consumers Contribute To Extended Economic Recoveries Because Of Buying Habits

May 12, 2017: 12:00 AM EST
“Jobless recoveries” from recessions have become the norm. Routine jobs eliminated during downturns never come back, thanks to automation and outsourcing. That makes recovery slow, dampening real wages for longer periods. But business researchers show that companies cutting costs during hard times isn't the only reason for slow recoveries. Consumers contribute by buying cheaper, lower quality goods – usually produced overseas – at discount retailers, a phenomenon called “trading down.” It’s a smart move for consumers, but ultimately the macro economy suffers. Lower quality goods and services don’t require skilled labor, so demand for U.S. labor slides, further crippling the economy. As the trend continues after the recession ends, the job market remains hobbled.
Sergio Rebelo, "Recessions Push People to Buy Cheap Things, Which Just Makes Everything Worse", Harvard Business Review, May 12, 2017, © Harvard Business School Publishing
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