AS Macro Key Term: Jobless Recovery

A jobless recovery happens when an economy enters the recovery phase of the business cycle with real national output (GDP) expanding over time. But there is no corresponding fall in the nation’s unemployment rate leading to persistently high jobless levels even though the economy has started to rebound from the trough of output. There are several explanations for the possible disconnect between national output and unemployment:

1/ Many businesses can increase output without having to take on extra workers - they can make more intensive use of their existing workforce and achieve higher productivity (i.e. output per worker employed) without the need to expand their payroll

2/ Low confidence - Unemployment tends to lag the economic cycle and one reason is that businesses may be waiting to see if the recovery will be sustained before committing themselves to increasing employment. Confidence is a vital ingredient in a recovery - economists often focus on the importance of animal spirits in shaping investment and employment decisions

3/ In the UK, the recovery in 2011-12 is occurring against the backdrop of a steep reduction in real government spending and borrowing and many thousands of job losses in public sector industries. There are doubts about whether the private sector of the economy will be willing and able to absorb the loss of jobs in the state sector.

Our chart below tracks real GDP growth for the UK and the rate of unemployment as measured by the Labour Force Survey

Data from Timetric.

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Bank of England Target 2.0 from Timetric