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An Explanation of What is a Jobless Recovery and its Primary Causes

What is a Jobless Recovery
What happens when an economy is cutting back on jobs, but is still experiencing growth? Is it possible? Here, we try to shed some light on this phenomenon, called 'jobless recovery'.
Urvashi Pokharna
Last Updated: Apr 9, 2018
When the recession hit major economies of the world, several companies fired their employees in a bid to cut the 'flab' and save up on costs. Now, even though the recession has ended, there are no signs of celebration. If you would have been the American Government, you wouldn't be celebrating it either. As you may have noticed, the official date of the end of the American recession still has not been announced by the government. Do note here that only prominent economists, and NOT the government itself, have announced the death of the recession that hit the US in the month of December 2007. Post June 2009, the US economy has recorded industrial growth but why America isn't gladly accepting the recovery? It may be because it is a jobless growth or recovery.
Understanding Jobless Recovery
The recession, seemingly, has ended, but do you feel it? Well, the recession may not have actually ended, so suggests the sluggish employment growth. The growth in the labor market is clearly not as many had been hoping for. Jobless growth means just that.
Jobless recovery is an economic state wherein the economy registers a growth in its real GDP. However, there is no significant growth in the rate of employment.
This is perhaps because even as the output and sales of a company increases, it delays hiring new employees. This is understandable as the uncertainty of economic recovery from the recession still prevails. So, a slow increase in employment was expected. However, creation of new job opportunities and employment has been slower in the US! The end of the previous recession in 1980s noted quick recovery of the rate of employment within the next few months. To justify the jobless growth post the recession in 2009, it may have occurred due to permanent structural change in jobs made by most companies. Not only did they do away with their employees, the companies absolutely got rid of the need of hiring employees for those job positions again. There is a definite growth in profits but the growth in employment does not correspond with it. There are 13.3 million jobless Americans, as of December 2011, after a drop of 0.4% in unemployment since November. Do not rejoice just yet because this number emerged after 315,000 unemployed people gave up on job search and are now no longer in the quest of employment. However, 120,000 more jobs were also successfully created in the economy within the same period, following a recruitment for 50,000 new job positions by retailers in wake of the holiday sale season.
Presently, an unemployed person will take 33 weeks and contend with 4 other Americans per job opening to find employment, according to statistics. The unemployment levels from 2009 to 2011 seemed to be far above than the pre-recession levels because companies kept firing its employees, especially, towards the end of 2008 during the recession period. In contrast, there has been a very low rate of hiring new employees in the 2 year recovery period in the aftermath of the recession.
Jobless recovery is often observed post recession. However, 2011 is over and the recession supposedly ended more than 2 years ago. So, why is the employment growth so slow?
Causes of Jobless Recovery
Although all economists do not agree on the causes, there are several reasons pinpointed that may be responsible for this phenomenon.
Labor Switching Between Different Industries
This leads to changes in the structure of the labor market. My thought is that even if labor was to change industries for work, it would only affect the unemployment rate in a specific industry. The net effect would remain the same as before. These employees may even be changing jobs in the same industry. This is commonly observed during periods of steady growth in the economy. But, it really sounds a little impossible that people could be willingly taking the risk of changing jobs during times of recession. I reckon that these are possibly those who had lost jobs during recession and are now struggling for employment by accepting jobs they may be overqualified for. These jobs include working in restaurants, parking lots and other part-time jobs. This may explain the shift in employment among industries post recession.
Increase in Output Levels and Productivity
This occurs due to two reasons:
  • Improvement in skills of the labor employed through training
  • Use of machines to improve the pace of work that takes place in the organization
The first reason for increase in productivity seems invalid in the case of jobless growth since companies would have been hiring more employees in that case. We cannot completely deny that they may not be working towards improving employee efficiency. The employees may be possibly being trained to become multifunctional across different areas of the company. But this cannot create a huge overall impact on the company's profits. This leads us to the notion that it is employing the use of better information technology systems. This is a major contender as the cause of a jobless growth or recovery because information technology has been known to help many world economies by out-doing human capacity for work in the same time. This obviously leads to increase in the rate of unemployment.
Automation of tasks has helped economies of Japan and Germany to achieve significant economic growth and increase their GDPs (Gross Domestic Product). In fact, this makes complete sense to the theory of work force resizing leading to a smaller number of employees. The previous ones have probably been replaced with automated systems. Automation has gained popularity in sectors such as manufacturing, banking, telecommunication and medicine.
Jobless Recovery in America Today
Is the world's largest and the most powerful economy ready to deal with this challenge? Until December 2011, the unemployment rate did not show any sign of positive changes for Americans and hovered around 9.1% for a long period. This is twice the official unemployment rate recorded in 2006. As witnessed in the preceding two recessions faced by the American economy, the recession of 07-09 has been followed by a jobless growth. When unemployment rates are still high, any recorded economic growth of the nation would only be weak. The United States has been known for its manufacturing sector's ginormous production capacity and output.

There has obviously been a slow economic recovery in 2011 as envisioned by economists in terms of employment. Even as productivity levels in the manufacturing sector may be increasing after recession, the only way to raise employment percentage may be if the candidates are qualified enough to persuade companies to replace machines with human resources and breathe new life into job creation opportunities.
To reach an economic state pre-recession, 235,120 new jobs need to be created every month. Several economists suggest that increase in government spending, employee recruitment in public sector, especially in the government, reforming the bank system of interest and mortgage rate may ease some anxiety in the economy and initiate a faster pace of economic recovery.