Jobless Recovery

With the economic indicators showing signs of recovery, albeit slower than expected, I will try to provide some information on a jobless recovery.

What is a jobless recovery?

As the name suggests, a jobless recovery is one where the economic indicators (such as GDP, increased consumer purchases etc.) are improving, but the unemployment rate remains just as high.

Why would a jobless recovery occur?

During the downturn, companies need to cut costs. One way of cutting costs is to reduce the number of people on payroll. Once the economy turns around, the company receives more orders / generates more profit. In order to handle the increased output, companies would require more manpower and thus would hire more people. Sounds right? Pretty much.

However, in some upturns, where economic times are on an uptrend, but the future is still uncertain, employees are more reluctant to hire new workers because should the prospect of a double dip recession come true, they would incur more expenses as many of the workers are hired on a contract. These workers may then be paid for doing absolutely nothing, hurting the company's bottom line. Should the worker be fired, the company would incur firing costs and hiring cost when the recession is over.

Companies are also reluctant to hire temporary workers, because of the training cost involved. Furthermore, there is no guarantee the worker would want to stay on, and by hiring another temporary worker, it would incur the same training costs again.

Why is a jobless recovery such a gloomy prospect?

In countries with a socialist structure, high unemployment rates put a strain on the government finances, as the unemployed would be entitled to unemployment benefits.

Even in Singapore, high unemployment rates would be an issue. Once a member of a family is unemployed, the discretionary income of a family drops. Spending is decreased, resulting in businesses suffering due to lower revenues. This translates into a need for businesses to cut costs, of which one method is to reduce its payroll expenses, further decreasing the discretionary income of families. This turns into a vicious cycle.

Recovery from a jobless recovery

The recovery needs to be to focused on job creation, as well as the sustaining the economy. Right now, the moves made in the US in order to provide credit to small businesses are right ones, because it is these small businesses that has the ability to create jobs. The bailout saved the banks, but as credit does not flow towards the small businesses, it may put them in trouble. By providing them direct credit as well as tax rebates to encourage them to hire more workers, it would decrease unemployment, causing a recovery in the job sector.

Hope this has enlightened my readers. Most of you should be clear on what a jobless recovery is but I hope this has helped in any way possible.

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