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Jobless Recovery

What is a Jobless Recovery?

A jobless recovery is an economic recovery that does not result in employment growth. This occurs when a recession or economic downturn ends and the economy starts to grow again, yet the level of unemployment remains high or keeps increasing. During a jobless recovery, companies focus on investments in automation and outsourcing as ways to reduce costs, without needing to re-hire laid-off workers.

The concept of jobless recovery first became prominent during the Great Recession of 2007-2009. The recession officially ended in 2009, yet it took several years for employers to begin hiring again, making it the longest jobless recovery in the US since World War II. During this time, the number of unemployed workers rose sharply, the labor-force participation rate declined, and the unemployment rate stayed above eight percent for four years.

The question of a jobless recovery affects both individuals and the broader economy. On the individual level, a jobless recovery can make already-unfavorable job prospects even worse as people who have been laid off struggle to find work as employers are unwilling or unable to re-hire. On an aggregate level, a jobless recovery can present an even larger barrier to economic growth as unemployed workers have fewer resources to spend in the market.

Signs of Jobless Recovery

One of the key indicators of a jobless recovery is when the unemployment rate remains high or keeps increasing despite improving economic activity. In other words, even when GDP is growing, if the unemployment remains stagnant or goes up, it is a sign of a jobless recovery. An unusually high or increasing number of long-term unemployed people, a decline in the labor-force participation rate, and a high underemployment rate are other signs that a jobless recovery may be occurring.

Causes of Jobless Recovery

Economist Lawrence Summers has argued that a jobless recovery is caused by structural shifts in the economy. He suggests that technological advances are replacing formerly human-driven jobs as companies focus more on automation and outsourcing. As a result, even when the economy is recovering, employers are not re-hiring the same number of laid-off workers as they have in the past.

Other economists suggest that the key cause of jobless recoveries is weak or slow wage growth. When companies experience slow wage growth, they will prioritize investments in technology and automation over re-hiring workers. This reinforces the cycle of weak wage growth, as the lack of jobs decreases bargaining power for existing workers.

Impact of Jobless Recovery

Jobless recoveries have a wide-ranging impact. On the individual level, lack of employment opportunities increases poverty and decreases quality of life. This can be a problem for people who have been laid off and struggle to find new work as well as for young people who are just entering the job market. On an aggregate level, the impact of a jobless recovery can increase inequality and decrease economic growth as unemployed workers have fewer resources to spend in the market and the purchasing power of existing workers is reduced. Finally, a jobless recovery increases the likelihood of a “double-dip” recession, as increased economic activity is not met with increased employment.

Conclusion

A jobless recovery occurs when economic recovery is occurring without a corresponding improvement to unemployment. Jobless recoveries can result from structural shifts in the economy, such as an increased focus on automation and outsourcing, as well as weak or slow wage growth. The impacts of a jobless recovery are wide-reaching, including increasing poverty and inequality, reducing economic growth, and increasing the likelihood of another recession. Thus, understanding and addressing the root causes of a jobless recovery is essential in order to foster healthy economic growth in the future.

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