Recessions and depressions are defined by decreases in GDP, with a decrease of 10% or more for at least one year indicating a depression. Jobless recovery can occur when GDP returns to normal without creating new jobs. This can cause long-term problems for the unemployed worker and may not be a true recovery.
Recessions and depressions in an economy are usually defined by crises in gross domestic product (GDP). In layman’s terms, GDP is the total amount of money invested or spent by individuals, businesses and the government on work, goods and services within a given year. In a recession this value decreases by less than 10% and in a depression it decreases by 10% or more for at least one year. There are myriad ways a country can recover from this, and a term that can be associated with recovery, especially from recessions, is jobless recovery.
What happens in unemployment recovery is that GDP returns to its normal state, but it does so without creating new jobs or restoring people who have lost their jobs. In other words, recovery usually occurs because businesses and government can spend and invest more money, while individuals, especially those without jobs, cannot. Some of the ways companies can catch up and start making more money include automating some of their workforce or outsourcing it so they can produce the same amount for less. This gives them more ability to spend, invest and increase production of products, without having to give people their jobs back.
When times get really tough, as in the depressions, it can be impossible to create recovery without a job. Even as business and government spending increases, an economy still depends on its citizens to make part of its spending and investment. If enough jobs are lost and workers are unable to find new jobs, their purchasing power is greatly reduced and the lack of purchasing power can make it difficult for GDP to rise to acceptable levels, regardless of government or private sector companies. Furthermore, the business of reducing private sector jobs to increase GDP can cause long-term problems for the unemployed worker.
On paper, it may seem that the economy has “recovered”, but for individuals who cannot work or who can only find work that pays them much less money than previously, this form of recovery is not very helpful. Ultimately, it could precipitate an even sharper GDP slowdown unless there is a way to restore people to jobs. The economic crisis in the US in the late 2000s was partly due to the recovery in unemployment after previous small declines in GDP.
Without jobs, there are fewer homeowners to pay taxes, which keeps lending institutions running and finances government spending. It also decreases demand for many things produced, as people out of work have to cut back on their spending. Some believe that recession and depression should be judged not only by GDP recovery, but also return to previous employment numbers as they existed before the onset of recession or depression. Analysts might argue that a jobless recovery is not a true recovery and any rise in GDP is an illusion of a country’s economic well-being: something that looks good on paper but leaves many people in a bad economic bind.
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