It was recently reported by the IMF, the international monetary fund, that the unemployment in the United States is likely to stay above 9% in 2011. While once politicians were accused of keeping the unemployment rate in the United States at 6%, now pundits are wondering how long it will take the United States to get back to below 6% unemployment, if ever.
Of course it would be hard to predict with any certainty what the unemployment picture will look like three years from now. For one, economists differ on what causes a rise in unemployment figures for country. Though obviously, the current economic recession, through one mechanism or another, is driving unemployment numbers to high levels in the United States. I personally believe that the current high level of unemployment is do to decreased demand for goods and services world wide.
As countries such as Britain slash their national budgets, this means that they will be spending less to hire people to do a variety of things, and as companies are still struggling to balance their books and as the banks are reluctant to loan out money for new businesses, there is less demand to produce new and more “stuff.” With the “stuff” including everything from shoes to organic vegetables which consumers buy each week.
If this simplistic model of unemployment is correct, than unemployment figures like won’t improve until government’s spending returns to pre-recession levels, and until businesses and families balance their checkbooks. Or in other words, it could take a while for the unemployment level to drop.
But will unemployment ever reach 5% again in the United States?
The answer is most likely yes. At least based upon historical records, unemployment in the United States exhibits a marked cyclical pattern. The last time unemployment reached 10% was during the recession in the early 1980s. And the highest level of unemployment was during the Great Depression when estimated levels of unemployment soared above 20%. So the United States has seen as worse, and even more gloomy, unemployment numbers. About 8 to 5 years after unemployment levels reach a high water mark in the United States, they have usually dropped to historically low levels. Meaning that by 2016, the United States could be enjoying very low unemployment levels. Long before this happens, unemployment levels should start creeping back to 7%.
However, all of this assumes that the current economic crisis is not as bad as the Great Depression of the 1930s. During the Great Depression, it is estimated that unemployment stayed at a record high level for around seven years. Is the current economic recession this bad? Not likely, as for one thing, unemployment has not skyrocketed above 15% (though obviously some segments of society have been harder hit than others.)
Nonetheless, some economists are worried that the current economic downturn will result in many years of sluggish growth and high levels of unemployment.
This hasn’t happened yet, and despite economic difficulties that still remain, the current recession is more similar to the recession in the early 1980s than to the Great Depression. The big question is, can the government do anything to create jobs?
In the short term, there likely isn’t much the government can do to decrease the unemployment rate. Long term changes should and need to be taken, but politicians who terms in office are limited to a short time frame are more tempted to choose short term solutions which will benefit them personally, than to make tougher long term economic decisions.
A big question is whether fundamental changes will be made in how financial institutions are regulated to decrease the impact of future recessions. Or, when the boom times return, will the lessons of the current economic recession be forgotten?