This production and capacity utilization for the

This could be the case if there is a very lengthy halt in investment in
technology-intensive fixed capital. The longer the crisis, the bigger a
company’s gain from investing in new technologies. Hence, this also could lead
to very strong demand for new technologies after the crisis, albeit with a
slight delay–compared to 2001–while companies invest in newly available
technology. Moreover, such investment will also depend on companies being able
to raise finance for  investment, requiring
a healthier banking sector.

Theory refined. Data on industrial production
and capacity utilization for the U.S. seem to show a significant
over-investment in new technologies in the second half of the 1990s. This
highlights a clear difference with the current crisis since the level of
investment in high technology in recent years has been on a par with investment
in other sectors. However, a jobless recovery could still occur, even without
previous over-investment in technology, if companies can increase production
without hiring new labor.

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Preliminary data from the U.S. show that demand confidence exceeds
employment confidence, similar to the situation after the 2001 recession. This
suggests that companies will be inclined to invest before they will be inclined
to hire. Data from 19 OECD countries show the same pattern, though with
substantial variation.

Repeat recovery? The question is whether this
pattern is set to recur when the world begins to emerge from the current
recession. In the past 18 months, investment in technology has stopped almost
entirely around the world. However, advancement of technology–innovation–has
been as fast as ever.

–For a time, companies can increase production by investing in new
technologies, and thus delay re-hiring people.

–Those that do so soonest are likely to be the most competitive and
hence best able to increase productivity.

–This means that when demand starts to recover, surviving companies
have the option to buy into the latest technology.

–However, since the innovation cycle is much longer than most downturns
in the business cycle, the rate of innovation in the economy is not overly
affected–new discoveries continue to be made.

–When there is a downturn in economic activity, employment rates fall
(i.e., jobs are lost) and companies stop investing in new technology.

Jobless recovery. Economic theory offers a
possible explanation as to why the effect of downturns on labor demand can be
extremely long-lived or, in other words, why recovery, in effect, can be

Dot-com experience. In 2001, after the burst of
the dot-com bubble, recovery was fairly rapid. However, though mature economies
already had seen a return to growth by 2002, employment did not recover in the
same way. Rather, it continued to lag behind.