The topic of "Jobless Recovery" is very relevant in the current context especially after the recent meltdown. This article tries to bring forth the biggest impact of the crisis i.e. unemployment. Unemployment is of utmost importance due to the fact that it is a real burden on an economy because "Mouths are working and hands are not". We have tried to present the current economic scenario with help of some facts and analysis for showing the recent recovery on paper is not worth cheering. We have concluded by giving the suggestion that the focus should be to improve the current employment scenario because that is where the real growth lies.
Jobless Recovery
A jobless recovery or jobless growth is a phrase used by economists to describe the recovery from a recession which does not produce strong growth in employment. The phrase originated in the early 1990s in the United States, to describe the economic recovery at the end of President George H.W. Bush's term; it came back into use during the early 2000s.
Recessions and depressions in an economy are usually defined by down surges in the gross domestic product (GDP). What occurs in jobless recovery is that the GDP returns to a normal state, but it does so without creating new jobs or restoring people who have lost jobs to work. In other words, the recovery generally occurs because businesses and the government may spend and invest more money, while individuals, especially those who are jobless, don't.
On paper, it may appear the economy has 'recovered', but for individuals who can't work, or who can only find work that pays them far less money than previously, this form of recovery is not very helpful. Ultimately, it may precipitate an even sharper downturn in the GDP, unless there is a way to restore people to jobs. The economic crisis in the US in the late 2000s has in part been due to jobless recovery after previous small dips in GDP.
Without jobs, fewer homeowners exist to pay taxes, which keep lending institutions running and funds government spending. It also lowers demand for many things produced, since people without work must of necessity cut their spending. Some believe that recession and depression should be judged not only by recovery of the GDP but also return to former employment figures, as existed before the recession or depression began. Analysts may argue that jobless recovery is not true recovery and any rise in the GDP is an illusion of a country's economic wellness: something that looks good on paper but leaves many people in poor economic circumstances.
Examples of earlier US Jobless Recoveries:
In 1991, the recession bottomed in March of that year, and unemployment kept increasing for 15 months, reaching 7.8 percent in June 1992.
Similarly, the last recession ended in November 2001, and unemployment didn't peak until reaching 6.3 percent in June 2003.
Jobless Recovery in USA - Data and Estimates:
There is a growing sense among economists that the worst of the recession might be over. Unfortunately, the same can't be said for the labour market. Most forecasts predict that the US unemployment rate getting back to "normal" levels of around 5 percent until 2014.
It always takes a while for jobs to start appearing after a recession, but the wait could be particularly long this time around because of the unique nature of this downturn and the severe damage it has done to the labour market.
Unemployment has always been a "lagging indicator," meaning its improvement tends to lag behind broader economic growth. That's partly because hiring is expensive, and companies want to wait and make sure they are on solid footing before they start bringing in new employees. For example, on the heels of a downturn, a factory manager wants to make sure an increase in orders isn't just a short-lived fluke before he hires more workers to ramp up production.
The lag time of job growths to recovery has been growing. After almost every recession since 1960, unemployment started to drop only one or two months after the recovery started. But that changed after the recession ending in 1991, after which there was a 15-month lag. After the recession of 2001, the lag was 19 months. This time around, most economists aren't expecting the lag time to be that long, but it will be years before the unemployment rate hits pre-recession levels.
This is probably due to technology replacing jobs, movement to a service economy, and other structural shifts. This increases the period needed for new jobs to be created, and for workers to get trained to fill them. Of the workers affected, 48.5 percent have been terminated permanently.
Job Losses in this Recession:
About 6.7 million jobs have already been lost during this downturn. That has left 14.5 million workers unemployed as of July. According to Moody's, the unemployment rate is not expected to sink toward 5 percent until 2014.
However, there is one problem also with these figures that these do not include the people who have become too disappointed to look for a job as unemployment rate is calculated by number for people getting the jobs divide by the people who are looking for it. So the actual figure is much more than the figures shown by the unemployment rate. A person who does not have a job and is actively looking for a job and is ready to work at on-going wages and still not getting the job is called unemployed person.
The unemployment rate surged to 9.7 percent in August, totalling more than 6 million job losses in 2009. Earlier, a total of 467,000 jobs were eliminated in June, bringing the jobless rate to 9.5 percent from 9.4 percent in May. The trend of four consecutive months of improvements in the pace of job losses has also been broken with increasing losses in the last month. The condition will worsen as states in the US exhaust their ability to pay unemployment benefits and cut services and jobs. The unemployment data for U.S. is given below:
Year and month
(2009)
As first published
As revised
January
7.6
7.7
February
8.1
8.2
March
8.5
8.6
April
8.9
8.9
May
9.4
9.4
June
9.5
9.5
July
9.4
9.4
August
9.7
9.7
September
9.8
9.8
October
10.2
10.1
November
10
10
There are now fewer jobs to be had than in 2001, even though 12 million new workers have joined the labour force. Hiring is expected to start in the second half of 2010.
World Data:
The ILO says that the number of jobless people in the world should soon hit a record 219 million to 241 million, some 39 to 61 million more than in 2007. Some 45 million young people are also expected to join the workforce annually, further swelling the demand for jobs.
Historically, on average, following a banking crisis, unemployment keeps rising for almost five years -- and the jobless rate goes up about 7 percentage points.
One key reason for this is that this recession had its roots in the financial sector. Growth will be hobbled because of the deep damage banks suffered during the financial meltdown last fall, which will make them less likely to lend money and fuel the economic recovery.
If the jobless rate continues to climb in the US, as is widely expected, that could generate pressure for another stimulus spending package.
Nobel-Prize winning economist Paul Krugman has also strongly voiced this demand and said the nation is on course for a "prolonged jobless" economic recovery unless the Obama administration steps in with a second round of government stimulus money.
So, our focus should be on improving the employment scenario because that is where the real growth lies. The employed people would increase the consumption for goods and services which would have a stimulating effect on GDP growth.
