If you Googled the definition of a recession this week, you got a standard answer that I, as someone who has taught economics for over 20 years, know well: it is “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP (Gross Domestic Product) in two successive quarters.” This definition is credited to Oxford Languages.

GDP is the total amount of goods and services produced in a country during a period of time. We just saw our second quarter of GDP decrease, but the Biden Administration and others claim we are not yet in a recession. They point out that the definition of a recession is officially only determined by the National Bureau of Economic Research (NBER) and that some other metrics outside of GDP seem to be strong.

So, what’s really happening?

Over the past 75 years, when the U.S. GDP has dropped in two successive quarters, it has been classified as a recession. The flexibility that is allowed by having NBER determine a recession — instead of using a hard-and-fast rule of two quarters — has historically been useful to classify recessions when they didn’t last for six months. For example, when Covid hit in 2020, the massive decline in economic activity only lasted from February to April before the recovery began. That was such a severe drop in output that it is classified as a recession despite not spanning two quarters.

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So, now that we know the definitions, are we in a recession, and if so, why is there controversy? 

While I understand the arguments by those who think we might not be in a recession, I think we are likely in one. However, this recession is very different from others for a key reason. Usually, the drop in output — GDP — causes pain for workers because of an increase in unemployment. For example, before the 2001 recession, the unemployment rate was at a low of 3.9%, and later increased to a high of 6.1%. Recessions are so synonymous with an increase in unemployment that it’s often discussed as one-and-the same. I don’t know of a single recession that hasn’t seen an increase in the unemployment rate.

We haven’t seen that yet, and unemployment rates are historically low. It is worth cautioning that unemployment rates often peak well after a recession ends, including with the 2001 recession when the 6.1% rate was well after the recession officially ended. Still, as of now, we don’t see evidence of job loss.

So what is happening? What makes this recession so different is the pain from the drop in output is being felt in a different way: with wages. Workers earn less when adjusted for inflation, as wages have not kept up with recent price increases. The U.S. Bureau of Labor Statistics found that “inflation-adjusted (constant dollar) private wages and salaries declined 3.1 percent for the 12 months ending June 2022.” 

Cuts in wages are not how workers usually feel the pain of a recession. A 3% pay cut, which is essentially what the average worker took over the past year, causes significant pain and stress for many families. Regardless of whether we are officially in a recession or not, the economic pain right now is real, and actions to curb inflation rates without spiking unemployment rates are key to improving the wellbeing of families.

Matt Rousu is dean of the Sigmund Weis School of Business at Susquehanna University and author of the book Broadway and Economics: Economic Lessons from Show Tunes. Views do not necessarily reflect those of his employer.