This time, we also offer a special technical box that considers the dynamics of excess capacity in longer business cycles like this one. The reason this is important is that in such longer business cycles, the restructuring or closure of firms reduces potential output while creating permanent job losses.
This means that the output gap can appear smaller than the labour market gap, which is our current situation. This difference persists until after the rebuilding phase of the recovery I discussed earlier, when the excess capacity measures eventually converge.