Sunday, September 6, 2009

Are we out of this crisis?

I don't know the answer to this question. The recent data shows that GDP of a few countries is growing, but the unemployment rate is not falling. Infact it is rising.This is true for both U.S. and Japan.Intutively, people would expect companies to start hiring in an expanding economy.

Economic purgatory- thats what Krugman calls this phase. He does NOT admit that there is a lag between increase in GDP and decrease in unemployment and also does not provide any reason behind this trend.

Here is an attempt to discuss the key reasons-
Please add any others reasons that you believe are leading to this jobless growth phase-
1. I feel globalization is a key dampner here. Almost every second
company's fortune are tied to fortune's of clients from other economies. It will
require a lot more countries to come out of the recession in order for the companies to start hiring. It is too soon for the companies to become confident about future demand
2. People are still uncertain about future. Every recession bring with it a feeling
of unsecurity and uncertainty about future. This feeling goes away with time
3. As a result of the crisis, the companies have become focused on increasing productivity of existing labor force. Hiring is the next logical step after this.
4. Any others?

1 comment:

  1. Jobless growth occurs when labour productivity increases faster than economic growth. If the productivity levels are very low, then you can expect to see productivity growth in an expanding economy- thus, jobless growth

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