Impacts of the Great Recession on labour markets

Consider USA, UK and EU. Discuss why the great recession did not impact on unemployment as happened in previous recessions (unemployment wasn’t so critical as in previous recessions). Why were the impacts evident in relation to welfare restructuring, pensions, raising of retirement etc. and not mass unemployment. Why is recovery so slow? How does austerity impact on the labour market?

don’t write introduction and conclusion. put answers in a nice body structure of the essay without introduction nor conclusion. I don’t need overview and causes of the great recession either.





Impacts of the great recession on labor markets

(Why impact of the Great Recession on labor market mild compared to other recessions)

The United States, the UK, and the European Union experienced the worst economic conditions during the Great Recession that occurred between 2007 and 2009. These regions experienced a decline in GDP to the lowest levels compared to the previous recessions. The labor market was adversely affected with the US experiencing an unemployment rate of approximately 10.0 % in October 2009 and an average rate of 7.7 % in the UK. The European Union region indicated the highest rates of unemployment, 9.5 %, in December 2009. As Jenkins (2010, p.30) noted, the unemployment rate during the Great Recession was not as severe compared to other recessions.

In comparison, the recessions experienced during the 19980s and 1990s were predominantly induced by a contraction in monetary policies aimed at lowering high inflation (Leab, 2014, p.563). However, the recent recession was faced by loosened monetary policy. This approach ensured businesses experienced lower interest rates thereby removing some constraints on the cash- flow. The Bank of England reduced its interest from 3 % to 1.5 % in February 2009, the lowest ever recorded in the UK. Low-interest rates and the minimized constraints enabled businesses to restrict growth in wage without necessarily exerting pressure on real wages. Before the recession, the RPI inflation averaged 3.5 % in the US as compared to 4.0% growth in nominal annual wage. These lower interest rates coupled with minimized pressure on real wages lead to mild effects on unemployment.

Another reason to explain the phenomenon arises from the fact that employers adequately managed the issues of uncertainty during the recession (O’reilly et al., 2011, p.585). They achieved this management by utilizing different short-term and long-term measures, as well as applying varying sets of institutional planning. Owing to these techniques, employers held on to their employees by initially utilizing short-term working plans. Cohen (2012) discloses that some firms realized that retaining their staff was cheaper than firing them. This approach by employers contributed to overall lower unemployment rates during the recession as compared to previous recessions.

Moreover, the government and other financial institutions took advance steps to curb the Great Recession that further mitigated its impacts on the economy (Appelbaum, 2011, p.567). For example, President Bush signed $170 billion economic stimulus package as tax rebates and incentives for taxpayers and business investments. President Obama’s administration further approved $784 billion as stimulus funds over a two-year period (Elsby, Hobijn & Sahin, 2010, p. 650). The European Commission formulated a plan of £200 billion (approximately 1.2% of GDP) to curb the impacts of the recession in the European Union. These efforts ensured that the cost of retaining workers by the firms was small and hence reduced the rate of firing employees reduced.

(Why the impacts of the recession evident in welfare restricting, pensions, raising of retirement etc and not on mass unemployment?)

The impacts of the recession were not as evident in mass unemployment as with welfare restructuring, pension, and raising of retirement among others due to various reasons. For instance, there was changing of working hours by employers by reducing overtime hours. The reduction of the number of overtime hours or offering fewer regular working hours helped to reduce labor inputs. Jenkins (2010, p. 371) notes that it was until the recovery started that the number of hours started rising. Moreover, impacts of great recession were evident in pensions, raising of retirement and welfare restructuring because people moved into inactive unemployment. Such change was either by going back to school, early retirement or by deciding not to work helped reduce the impact of the recession on employment. Additionally, there has been an almost parallel shift from women moving into employment as men move out. This shift is evidenced in the EU-28 by the increase in the employment rate of women from 58.3 % to 58.8 % between 2009 and 2013 while that of men decreased from 70.6 % to 69.4 % (Jenkins 2010, p. 371).

(Why is the recovery slow?)

After the Great Recession, the economies of the affected regions had taken considerable time to recover from its economic downswings. Bailey and Chapain (2011, p. 217) noted that the US recorded an unemployment rate of 9.2% exactly two years after the recession. Although the responses by fiscal and monetary policy approaches were swift, they were not effective enough to save the US economy. The economic stimulus was too small compared to $12 trillion gaps created by the housing bubble collapse (Kurth, 2011, p.510). The interest rates have also remained low, and the monetary policy has been ineffective in private borrowing stimulation.

Another reason for this lag in the economic recovery has been due to the depression in aggregate economic activities (Cohen, 2012, p.361).The US GDP contracted 4.3 % between 2007 and 2009 despite the rise in the primary economic drivers. Then aggregate demand has remained low owing to insufficient fiscal and monetary policy stimulus. Dominguez and Shapiro (2013, p.549) also presents another view that there is consistent uncertainty concerning the economic policy.

(How does austerity measures impact labor markets?)

Austerity measures aim at reducing government spending with the intention of controlling debt within the public sector especially during times of economic turmoil (Doogan, 2011, p. 127).  The objective of austerity is to reduce government debt by targeting public sector pensions, government welfares as well as government-sponsored health care. The impact of any austerity measure on the labor market mainly depends on the direction the measure takes. For instance, a government’s decision to reduce the number of pension funds would lead to the workforce moving into the private sector. Additionally, an attempt by the government to improve the welfare of its workers would influence the employees to favor the public sector jobs at the expense of private sector.

It is also worth noting that austerity measures help to promote lower inflation rates. Such declined inflation rates have a high impact on the wages of the labour market. Moreover, Hauben et al. (2012, p.9) explain that staff reductions and reduction of direct payments are some of the control measures adopted. Such measures directly relate to the labour market as they affect employment rate and issues on wages. Austerity measures are also associated with issues of social provisions such as pensions and insurances. Austerity measures often comprise a deduction or withdrawal of such social services and security which adversely affect the labour market.

Austerity measures are also a critical source of influence on cohesion or division within the labor market. According to Szczepanski (2013, p.3), austerity measures promote to weakened collective bargaining and social dialogue within the labour market. Austerity measures promote such as negotiations of working hours and wages at an individual level between the management and the employees. Such a process deters collective bargaining which is an essential aspect of the labor market.




Appelbaum, E., 2011. Macroeconomic policy, labor market institutions and employment outcomes. Work, Employment &Amp; Society, 25(4), 596–610.

Bailey, D., & Chapain, C., 2011. The recession and beyond: local and regional responses to the downturn. Oxon: Routledge.

Cohen, M. A., 2012. The global economic crisis in Latin America: impacts and responses. London: Routledge.

Dominguez, K. M. E., & Shapiro, M. D., 2013. Forecasting the Recovery from the Great Recession Is This Time Different? Cambridge, MA: National Bureau of Economic Research.

Doogan, K., 2011. Austerity, labour market change and the transformation of work. IJMCP International Journal Of Management Concepts and Philosophy, 5(2), 127.

Elsby, M. W. L., Hobijn, B., &Şahin, A., 2010. The labor market in the great recession. Cambridge, MA: National Bureau of Economic Research.

Hauben, H., Coucheir, M., Spooren, J., McAnaney, D. and Delfosse, C., 2012. Assessing the impact of European governments’ austerity plans on the rights of people with disabilities. Bernard Brunhes International.

Jenkins, J., 2010. The labour market in the 1980s, 1990s and 2008/09 recessions. Economic &Amp; Labour Market Review Econ Lab Market Rev, 4(8), 29–36.

Kurth, J., 2011. A Tale of Four Crises: The Politics of Great Depressions and Recessions. Orbis, 55(3), 500–523.

Leab, D. J., 2014. Encyclopedia of American recessions and depressions. Great depression to great recession of 2008-2009. Santa Barbara, CA: ABC-CLIO.

O’reilly, J., Lain, D., Sheehan, M., Smale, B., & Stuart, M., 2011. Managing uncertainty: the crisis, its consequences and the global workforce. Work, Employment &Amp; Society, 25(4), 581–595.

Szczepanski, M., 2013. Austerity, labour market and international treaties: Cases of four EU countries in receipt of financial assistance. European Parliamentary Research Service

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