Unemployment Related to Recession

Introduction


This paper explores unemployment and the unemployment rate and the main economic factor that makes the rate fluctuate so much.   Although the unemployment rate is the highest in years, by comparison it may be very small. This paper will discuss the mark of a recession on the unemployment rate within the economy.


Unemployment Rate


The unemployment rate is defined as the percentage of the labor force that is unemployed.   The labor force consists of those who are either working or looking for work (Taylor 2001).  


In the Economy


  Economists say the rise of the unemployment rate can almost always be contributed to by a recession. Even as the economy rises and jobs are added to the economy the unemployment rate may still rise as well. This is due to the fact that the two numbers are generated from different surveys. The unemployment rate comes from a survey of households, whereas the payrolls data comes from a survey of businesses.   Also, that payroll data is subject to dramatic revision. For example, the government’s initial reading of growth outside the farm sector in March found 58,000 new jobs, but the number was later revised to a loss (CNN 2002).  


Gerard Jackson has a theory as to why a recession changes the unemployment rate so much. The failure to understand the forces that result in succeeding recessions being accompanied by higher levels of unemployment is due to the acceptance of two economic fallacies: treating money as neutral and capital as homogeneous.   If money is neutral then that will only change output and the price level.   Hence, changes in money supply will only misdirect production, creating malinvestments.   It also follows that if capital is homogeneous (meaning that all capital goods are perfect substitutes for each other) bottlenecks cannot occur and capital cannot be lost through malinvestents (Jackson 2001).


Since this is a macroeconomics paper let’s take a few paragraphs to focus...