Effects Of Recession On The Employment Level - 1106 Words

Recession is an economic phenomenon that comes in a cyclic fashion. Recessions generally occur due to an effect of adverse demand shock. Unemployment is one of the most prominent effects of recession. Due to the economic downturn, companies try to save money rather than investing it in a production process. On the other hand, the consumption power of the consumers also reduces by a significant level. These factors have a serious impact on the employment level. After the recovery from the recession period (2007-2009), although the unemployment rate reduced gradually, however this trend has not shown the entire picture. Most of the employers have recruited part-time employees during this period. Though the number of full time employees is†¦show more content†¦According to the economic theory producers will reduce their supply. Thus the decline in production will affect the labor market. In this situation the producers will minimize the inputs of the production for profit maxim ization. So they will withdraw their capital and will reduce the labor power. So there will be unemployment i.e. there will be disequilibrium in labor market. As the labor market equilibrium is a steady equilibrium, the market will again tend towards the equilibrium level or will diverge to a new equilibrium (Dornbusch, Fischer and STartz). So during the post-recession period the unemployment rate got reduced slowly due to rise in demand and employers started recruiting labors in the production process. However, the employment rate is less than the same in the pre-recession time as the change in economy takes its own time to recover. During this time, though the investment risk in the economy is lesser than the recession period; but it is not completely recovered. During this transitional period, the employment scenario has also changed gradually i.e. from unemployment to part-time employees to full-time employees. One of the important aspects behind the elevated level of part-time employee is the reducing wage rate. According to the neoclassical theory of supply, wages are adjusted automatically to always maintain the output at the full employment level. But this is a hypothetical theory