Wounds leave scars and the Great Recession is no exception. It was the longest and deepest global economic crisis since the Great Depression of the 1930s.

It is now just over a decade since the Great Recession began in the US, officially lasting from December 2007 to June 2009. During this period, much of Europe also fell into recession, while China and India both saw a slowdown in economic growth.

Ten years on, the US economy is in good health; corporate earnings have recovered, the stock markets are booming, economic growth is healthy and unemployment has fallen.

And yet nations, communities and individuals have all been altered – or scarred. Policymakers rushed to offset the severity of the crisis and succeeded in stopping events spiralling out of control. But there are still question marks over whether enough has been done to prevent another global crisis and to alleviate the pain that is still lingering. 

The “too big to fail” conundrum

The recession had its roots in the US mortgage markets, as it emerged that lenders had accumulated large quantities of debts which were unlikely to be paid back. Not knowing which banks were holding the “bad debts” led to fear, the withdrawal of funds and then panic.

Two large and reputable banks - first Bear Stearns and then Lehman brothers - collapsed. Governments intervened quickly to protect their own banks and financial institutions which looked vulnerable to contagion.

Such interventions, where public money is used to shore up important private companies, has become a phenomenon with its own terminology; “too big to fail”. But that concept creates a problem. If a bank is too important to be allowed to fail, then what is to stop it indulging in risky behaviour?

Since most of the firms involved are multinationals, global agreements are needed to counter such irresponsible behaviour and stop “too big to fail” becoming a state safety net for private risk taking. 

Progress has been made. There has been increased regulatory attention to business models that are likely to pose systemic risks and the financial system as a whole has been made more resilient to shocks.

But the conundrum of “too big to fail” remains. Ben Bernanke, who was chairman of the US Federal Reserve during the financial crisis, wrote a paper as recently as 2016 examining the right approach to “too big to fail”, and saying policies were still a work in progress.

Giving up on work

The recovery of the job market, on the face of it, appears to be much less of a work in progress.

US unemployment soared as high as 10% at the height of the recession in October 2009, but has now fallen to 4.1%, the lowest rate since the start of the 21st century.

However, analysts are increasingly perplexed by a parallel set of data - the labor participation rate - which has not recovered in the same way. While the unemployment rate counts people who are actively looking for work, the labor participation rates shines a light on the number of people of working age who are not actively seeking employment.

In December 2007, 66% of civilians aged 16 and over were either employed or actively looking for work. As of October 2017, that figure was just 62.7%. The marked drop is partly due to workers being so discouraged about their employment prospects that they don’t even register as job seekers, according to a study by the Pew Research centre.

The redundancies of the Great Recession were primarily in middle skill jobs like construction, manufacturing, telemarketing and administrative-support work. It is these jobs which were already the most vulnerable to automation and global trade. The legacy of the Great Recession continues to blight the lives of large swathes of people with few alternative employment prospects.

The pain of job losses

The concentration of job losses in these areas has increased the divide between rich and poor, as the majority of college-educated workers have now emerged from the recession unscathed.

And although there is now more clarity about the nature of the problem, the solutions are less clear-cut when it comes to getting middle skilled workers back into the workplace, according to research from the Brookings Institution. Some experts have suggested reducing the safety net programme or creating more family-friendly policies. But if these workers are to be reskilled, policymakers will have to grapple with a major overhaul of both education and training.

To a certain extent, the slump only intensified a longer-term trend that was already underway, as many western economies shift towards more service sector jobs and figure out how increased automation will change the world of work.  

Nevertheless, an acceleration of a trend requires an acceleration of policymaking. Some radical changes still need to be made to prevent another global financial crisis and ensure that as many people as possible are in work.

The US economy may appear to be in good health, but the scars from the wound that was the Great Recession are definitely still visible.