What is a Jobless Recovery?

Recessions and depressions in an economy are usually defined by downsurges in the gross domestic product (GDP). In layman’s terms, the GDP is the total amount of money invested or spent by individuals, businesses and the government on labor, goods and services within a given year. In a recession this amount declines by less than 10% and in a depression it declines by 10% or more for at least a year. There are numerous ways a country can recover from these, and one term that may associated with recovery, especially from recessions, is jobless recovery.

What occurs in jobless recovery is that the GDP returns to a normal state, but it does so without creating new jobs or restoring people who have lost jobs to work. In other words, the recovery generally occurs because businesses and the government may spend and invest more money, while individuals, especially those who are jobless, don’t. Some of the ways in which businesses can recover and begin making more money include automating part of their workforce or outsourcing it, so they can produce the same amount for less. This gives them more ability to spend and invest, and to increase product production, without having to give people back their jobs.

When times get very tough, as in depressions, it may be impossible to create jobless recovery. Even with increases in business spending and in government spending, an economy still depends on its citizens to do some of its spending and investing. If enough jobs are lost and workers can’t find new jobs, their spending power is greatly reduced, and lack of spending power can make it difficult for the GDP to rise to acceptable levels, no matter what governments or private sector businesses spend. Moreover, the business of reducing jobs by the private sector to raise the GDP can cause long-term problems for the unemployed worker.

On paper, it may appear the economy has “recovered,” but for individuals who can’t work, or who can only find work that pays them far less money than previously, this form of recovery is not very helpful. Ultimately, it may precipitate an even sharper downturn in the GDP, unless there is a way to restore people to jobs. The economic crisis in the US in the late 2000s has in part been due to jobless recovery after previous small dips in GDP.

Without jobs, fewer homeowners exist to pay taxes, which keeps lending institutions running, and funds government spending. It also lowers demand for many things produced, since people without work must of necessity cut their spending. Some believe that recession and depression should be judged not only by recovery of the GDP but also return to former employment figures, as existed before the recession or depression began. Analysts may argue that jobless recovery is not true recovery and any rise in the GDP is an illusion of a country’s economic wellness: something that looks good on paper but leaves many people in poor economic circumstances.