Recession's Effects on the Labor Market Essays

Recession's Effects on the Labor Market Essays

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Human wants are generally insatiable, yet the means of ensuring these wants are limited simply because the world has only limited amounts of resources which comprise of human wants that are grossly limited both in number and skills (this is where unemployment arises). Recession happens if output in the economy reduces, this is to say that growth becomes negative. When people spend less, shops will be left with unsold stocks, which will result in purchasing less from the producers, which in turn will cut down on production. Unemployment is likely to result from cutbacks in production. When firms produce less, they need fewer employees.
Several countries regardless of their economic status have experienced various degrees of unemployment since the economic downturn in 2007. The U.S economy had an unemployment rate of 9.2% as at June 2011, Egypt with a 19% unemployment rate and the Saudi economy of 10%. This is very costly economically because it represents a loss in the GDP.
The classical theory analyzed by Pigou (1993) and Solow (1981) argues that the labor market consists of demand and supply of labor. The demand curve is a negative function of real wage in that if wages increase, the quantity demanded for labor will decline and the opposite is correct. Because one is employed does not mean that others are not unemployed. Cheaper labor to entrepreneurs is the most effective way to reduce unemployment. Technological advancements will cause a rise in the number of unemployed but these unemployed will also search for other jobs but this search is likely to reduce wages. Wage reduction is not a complete way to increase employment. Organizations look out for skilled workers who in turn look for better paying jobs which leaves ever...


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...en the degree of social guidance and the unemployment rate of today. For example, the Netherlands has returned to low unemployment while offering high social guidance.
In conclusion, an environment in which aggregate negotiation is central to wage determination, not only formal labor market institutions but also good labor groups are important to reducing the rates of unemployment.
Reference
Adil, H.M. (2011) ‘Important Theories of Unemployment and Public Policies’, Journal of Applied Business and Economics, [online], vol 12, no5, pp100-110, (accessed 16 March 2014).

John, S. and Dean G. (2010), ‘Essentials of Economics’, 5th edition, Harlow: Pearson Education.

Olivier, J.B. (2004), ‘Explaining European Unemployment’, The National Bureau of Economic Research, [online], Available from: http//www.nber.org/reporter/summer04/Blanchard.html, (accessed 16 March 2014).



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