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A jobless recovery occurs when GDP returns to normal without creating new jobs or restoring those who have lost them. Companies may automate or outsource to increase production, but in severe cases, a lack of spending power can make it difficult to achieve acceptable levels of GDP. The jobless recovery can cause long-term problems for the unemployed worker and trigger an even steeper recession unless people are put back to work. The return to previous employment figures should also be considered when judging a recession or depression.
Recessions and depressions in an economy are usually defined by declines in gross domestic product (GDP). Put simply, GDP is the total amount of money invested or spent by individuals, businesses and government on work, goods and services within a given year. In a recession that amount decreases by less than 10%, and in a depression it decreases by 10% or more for at least a year. There are numerous ways a country can recover from these, and one term that can be associated with recovery, particularly from recessions, is jobless recovery.
What occurs in the jobless recovery is that GDP returns to a normal state, but it does so without creating new jobs or restoring people who have lost their jobs. In other words, the recovery generally occurs because businesses and government can spend and invest more money, while individuals, particularly those who are out of work, do not. Some of the ways companies can catch up and start making more money include automating part of their workforce or outsourcing it so they can produce the same amount for less. This gives them greater ability to spend and invest, and to scale up the production of products, without having to give people their jobs back.
When times get very tough, as in depressions, it may be impossible to create a jobless recovery. Even with increases in business spending and government spending, an economy still depends on its citizens to do some of its spending and investment. If enough jobs are lost and workers fail to find new jobs, their spending power is significantly reduced, and a lack of spending power can make it difficult to achieve acceptable levels of GDP, regardless of what that governments or private sector companies spend. Furthermore, the activity of reducing employment by the private sector to increase GDP can cause long-term problems for the unemployed worker.
On paper, it may appear that the economy has “rebounded,” but for people who can’t work or can only find work that pays them much less money than in the past, this form of recovery isn’t very helpful. Ultimately, it could trigger an even steeper recession than GDP unless there is a way to get people back to work. The economic crisis in the United States in the late 2000s was partly due to the jobless recovery after earlier small declines in GDP.
Without jobs, there are fewer homeowners who pay taxes, which keeps the lenders running and finances government spending. It also reduces the demand for many things produced, as people without jobs necessarily have to cut back on their expenses. Some believe that the recession and depression should be judged not only by the recovery of GDP, but also by the return to previous employment figures, as they existed before the onset of the recession or depression. Analysts could argue that the jobless recovery is not a real recovery and that any increase in GDP is an illusion of a country’s economic well-being – something that looks good on paper but leaves many people in poor economic shape.
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