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Unemployment Rise Shows Recession Far from Over

Another month, another 600,000-plus jobs gone. That was the big message from the March employment report released Friday by the Bureau of Labor Statistics, which saw nonfarm employment drop by 663,000 and the unemployment rate rise to 8.5%.This was the fourth straight month with job losses greater than 600,000. In fact, the biggest news in the report may have been the sharp upward revision to January's job losses (originally reported as 598,000) to 741,000, the biggest one-month decline in absolute terms since 1949. Job losses from this recession are now markedly worse than those during the previous two downturns that had competed for the title "worst since the Depression." Nonfarm employment has dropped by 5.1 million, or 3.7%, since its peak in December 2007. In the 1981-82 recession, employment fell 3.1%, and in 1974-75 it fell 2.8%.In case you're wondering, during the Great Depression, nonfarm employment fell 33.9%, so we're not even remotely close to that territory yet. The unemployment rate is still well below the 10.8% peak of late 1982, but this doesn't signify much. The rate is what economists call a "lagging indicator," and it will still be rising well after the economy has started growing again. It's also misleading, in that it excludes from its calculations people who would really like to have a job but have given up actively looking. As a result, economic forecasters tend to look more closely at payroll data, which come from a survey of 150,000 businesses and government agencies. (The unemployment rate is derived from a Census Bureau survey of 50,000 households.)The payroll number is a "coincident indicator": it tells what's happening now, or at least what was happening in the very recent past. It sometimes misses incipient upturns, because new jobs are created by small businesses, which aren't counted in the payroll survey. But there are no signs that anything like that might be happening now.

There have been some economic reports in recent weeks suggesting that the pace of the downturn has eased: consumer spending has stopped falling, the housing market has begun showing some signs of bouncing along a bottom (not so much in prices yet as in sales volume), and manufacturing's free fall has moderated somewhat. The stock market has of course been on a tear, with the S&P 500 index up 20% since early March. But while the market is a leading indicator, it can be an extremely unreliable one.

The March employment data make it clear that any slowing in the rate of economic decline has yet to make itself apparent in the job market. The payroll drop was at least not any worse than forecasters expected, and it was 78,000 less than January's decline. But given the margins of error in the data, this may not mean anything at all.

The positive take, if you can call it that, is that we're in a "rolling recession," as Kurt Karl, chief U.S. economist at insurer Swiss Re, said in a note to clients. "First the housing market tanked, then consumer spending plummeted, now business investment is nose-diving." Hey, at least it didn't all happen at once! Peter Morici, an economist at the University of Maryland's Smith School of Business, offered a gloomy scenario: "Lacking confidence that the demand for what Americans make and sell will recover significantly anytime soon, businesses are girding for a long siege - slashing employment and dividends and hunkering down," he wrote in an e-mail. "They are preparing for a depression and the eclipse of American leadership."

Economics Coursework

In the late 2000s, particularly since late 2008, the industrialised world has been undergoing a recession, described as a prominent deceleration of economic activity. The financial crisis of 2007-2009 was the cause of the on-going global recession in coalition with an unstable economic system. A recession is characterised as a time period in which productivity declines and is estimated to last for six months before it is officially declared a recession. There are many reasons contributing to a recession's start. Trouble in the stock market or the business world may result in a consumer a "scare"; generally, anything that shifts consumer demand to the right and urges them to save their money as oppose to spending it. As a result of the reduction in consumer spending, companies must reduce their output; and the prolonged reduction of output will in turn result in job reductions. This process is described as a "vicious circle", the less consumers consume, the more reduced is productivity and the more jobs are lost.

Unemployment occurs when a person is available to work and seeking work but currently without work.

The diagram above shows a single Aggregate Supply curve but, we can identify 3 parts: The first part describes an economy where output is very low relative to the economy's potential-that is a deep recession. Firms do not need the incentive of higher prices to get them to increase production- they are willing to supply more at the same price.

   Sooner or later the first local shortages of inputs occur. These "bottlenecks" for example shortages of key workers such as computer programmers force the firms which need them to offer higher wages: therefore these firms require higher prices in order to produce more. At first the AS curve is very elastic, but becomes more inelastic as bottlenecks occur in more industries. Eventually, even unskilled manual labour becomes scarce and so this part of the AS curve becomes very inelastic as firms require higher prices to get them to increase output by even a little. Eventually, full capacity, that is Yfe is reached. There are no more workers, factories, raw materials, available even if firms are offered higher prices - AS is now perfectly inelastic.

In the diagram above, the economy is in equilibrium at O-Y. This actual level of output is less than Yf which represents the potential of the economy - the level of output which would occur if all available labour, capital and land are being employed. Y-Yfe represents the "deflationary gap", that is the shortage of demand; there will be unemployment of capital and land, as well as labour.

Unemployment associated with recessions is known as "Cyclical Unemployment'.

The diagram above illustrates business cycles. These are short-run fluctuations of the economy (real GDP and unemployment) around the growth trend. On the diagram, the "peak" is the highest point before a recession. A "trough" is the lowest point of a recession before an expansion. An expansion is the period between a trough and the following crest. Market economies exhibit cyclical properties over a 6-8 year period: in a recession workers are laid-off and are usually rehired as the economy recovers (unless there is a so called "jobless" recovery, where capital substitutes for labour.) Typically cyclical unemployment should not last longer than 6-18 months.

In this case we can distinguish between another form of unemployment. Frictional unemployment. This occurs due to frictions in the labour market "grit in the machine", typically a job-seeker/searcher has the appropriate skills to fill a vacancy but has not yet heard about the job, while on the demand side an employer is searching for a suitable work. Frictional unemployment lasts usually no more than 3 months.

A high percentage of unemployment may lead to fierce competition for work. Employers are more at liberty to decide on potential candidates and at lower costs, seeing that a high demand for a certain job hints its "inelasticity".