Updated, March 12, 2025: This post has been adjusted to correct the year associated with the unemployment rate when the dot-com bubble burst, which was March 2001 — not 2021
President Donald Trump has not ruled out that his onslaught of erratic tariff announcements, draconian and random cuts to the federal workforce and legally challenged government program stops could lead to a recession. The economy is already showing signs of slowing: less hiring and possibly rising inflation. Whether the economy will indeed slide into a recession is very much an open question. But, it would be surprising if the sharp increase in economic policy uncertainty coupled with spending cuts would not result in a slowdown with higher unemployment rates. Less hiring will hurt many vulnerable older workers, who often keep working to supplement limited retirement savings, but also Black and Latino workers as well as disabled workers, who also have few savings to fall back on. Policymakers cannot take the chance of a long-lasting recession lightly because it undermines the economic progress these groups have made in recent years and would create widespread and long lasting economic pain.
The last two recessions before the pandemic show that the economic pain of a recession can linger for many years. This was especially the case during and after the financial crisis from 2007 to 2009, but it held for the prior recession, too. Data from the Bureau of Labor Statistics show that the unemployment rate increased from 5.0% in December 2007, when the Great Recession started, to a high of 10.0% in October 2009, four months after the Great Recession officially ended. It took until September 2015 – almost another five years — before the unemployment rate again reached the low from before the Great Recession. The experience when the dotcom bubble burst in 2001 is similar, though, not as extreme. The unemployment rate went up from 4.3% in March 2021, when the recession started, to a high of 6.3% in March 2003 or 16 months after the recession officially ended in November 2001. The unemployment never fell to its pre-recession low before the Great Recession hit. Both recessions before the pandemic created long-lasting economic struggles for millions of workers.
The economic scarring from a recession means real economic harm. Poverty goes up, while people default on credit cards and mortgages, lose their house and suffer increased mental and physical health issues such as depression, suicides, substance disorders, higher morbidity and shortened lifespans, according to a summary of the literature by researchers in the UK.
The pain of a recession is unevenly felt. Black and Latino workers, those without a college degree, disabled workers and older workers all see larger increases and longer unemployment spells than White workers, workers with a college degree and younger workers. And, the decline in the unemployment rate takes longer for those, for whom it jumps the most.
The experience of older workers – those 55 years to 64 years old — during and after the Great Recession was a particularly striking example. According to BLS data, their unemployment rate went from 3.0% in December 2007 to over 7.0% in the late 2009 and early 2010 – a relative jump of more than 130% – compared to an increase of 100% for the overall unemployment rate. Moreover, the same data set shows that the average length of unemployment for workers 55 years to 64 years old out at 60.2 weeks in April 2012. And, the average length of unemployment for older workers never reached its pre-recession level of 20.2 weeks until the pandemic happened in March 2020. Other vulnerable groups fared equally badly in the so-called recovery after the financial crisis, even though the government poured hundreds of billions into stabilizing financial markets and the economy. Put differently, even with a lot of government attention, the pain of a recession can hurt people for many years.
A related lesson then comes from the pandemic. It takes enormous government efforts, typically in the form of additional government spending and tax cuts for low-income and middle-income households to right the economy. Congress approved almost $800 billion in a stimulus package in early 2009 to help the economy recover from the Great Recession caused by the bursting mortgage bubble. It was not enough as a painfully slow recovery in the labor market showed.
Congress, not wanting to repeat this kind of pain during the pandemic, stepped up and first approved more than $2 trillion as a stimulus package consisting of spending increases and tax cuts in March 2020 to help businesses and people caught by the economic shutdown. Congressional Democrats added another $1.9 trillion in early 2021 upon the urging of President Biden to make sure that the economy would not slide back into a recession amid surging Covid infections.
The result was that the unemployment rate quickly recovered. It first jumped from 3.5% in February to 14.8% in April 2020. By December 2021, less than two years since a once-in-a-century pandemic happened, the unemployment had fallen to below 4%. The unemployment rate stayed at or below 4% for the longest period in 50 years, reaching a low of 3.4% in April 2023. The recovery from the onslaught of the pandemic was swift due to massive government interventions and, still, people had to wait for years for labor market opportunities similar to those before the pandemic.
It is unclear that Trump and congressional Republicans would be willing to provide such large and necessary support if people and businesses needed it in a self-inflicted and unnecessary recession. The past few months have shown that their focus is on spending cuts rather than increases to vital programs, such as Medicaid and SNAP. These are vital programs in case the economy slows happens. And, congressional Republicans have in the past expressed their dislike of providing tax cuts such stimulus checks and expanded Child Tax Credit payments to low-income and middle-income households in the past. Why would this time be different? And, finally, Trump and many congressional Republicans have taken aim at government incentives for new investments in green technologies under the Inflation Reduction Act, which could buttress business investment spending in a downturn. Millions of families will suffer for many months if not years without the help from vital programs, direct assistance and support for business investments amid a slowing economy that could slide into a recession. Congress and Trump are unlikely to provide this help.
The memory of widespread and prolonged pain of past recessions may have faded. But, that pain was and will be real. Policymakers cannot take a recession lightly and cannot blithely risk one. The Hippocratic oath applies here, too. Donald Trump and Congress should not do harm to people’s financial security, especially if they are not willing to help them recover from that pain.
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