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What is the Effect of a Recession on Unemployment?

By Erin J. Hill
Updated May 16, 2024
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Most times the effect of a recession on unemployment causes the rate of those seeking unemployment benefits to rise, sometimes drastically. As a recession takes hold, businesses stop making as much money and many have to let go of part of their work force. Unemployment rates continue to rise and fewer consumers have the discretionary income needed to boost sales and allow businesses to rebound. There are several things governments may do to bring unemployment rates down and encourage businesses to hire, as well as to push consumers to spend more of their money in order to boost the economy.

The effects of a recession on unemployment vary based on how long the recession lasts and how deeply it has taken root. A recession is defined as three consecutive quarters of gross domestic product (GDP) being in the negative. This means that there is no growth in the economy during this time. Many times these negative periods will be preceded by periods of very slow growth.

There are various ways governments can lessen the effects of a recession on unemployment. Oftentimes tax breaks will be given to businesses. Certain types of businesses may be able to get government funding and officials sometimes offer incentives to get consumers to spend money again. This can include tax cuts, offering public assistance programs or expanding the ones already in place, and giving stimulus money to certain groups of people.

Changing the effects of a recession on unemployment takes time. In many cases it takes months before those who are still employed feel safe enough to begin spending money again. When this occurs, businesses gradually increase their workforce. Sometimes jobs which were previously available before a recession do not return after it has ended.

One example of this changing job market relates to the United States recession which began in 2007. When the housing market crashed, many real estate developers and the crews which worked for them were out of work. Unfortunately, the market is unlikely to return to its pre-recession growth in terms of new houses being built. These workers will need to learn new skills in order to qualify for new jobs.

In many cases unskilled workers are the ones hit the hardest during a recession. Since these individuals are often paid the least, they are less likely to have savings to fall back on. Many end up requiring unemployment benefits, where available, as well as other public assistance programs. Those with certain skills and education levels are often still in high demand, but there are often not enough workers to fill these rolls. Financial assistance is also typically made available so that workers can return to school and learn new skills in order to find work.

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Discussion Comments

By Rundocuri — On Feb 25, 2014

I know a lot of people have been very frustrated by trying to find a job during this recent recession. However, it is important not to lose hope and to understand that a recession and unemployment are common. Think about ways to hone your job skills and improve your resume. Don't give up, and keep networking and getting your resume to new companies. I learned from experience that a new and better job is out there after being unemployed during a recession.

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