Recession :Impact on unemployment

As we know,the economic downturn has brought to the fore some stark realities, at least on the jobs front. 'Cost cutting' and 'downsizing' have become the new buzzwords.The eruption of the crisis has caused companies to compel underperformers to either pull up their socks or leave.
A recession is defined as a period of general economic decline; specifically, a decline in the country's GDP for two or more consecutive quarters.During a recession the company would either:

1. reduce unnecessary expenditure (cost optimization) and/or

2. reduce unnecessary work force (resource optimization).

Both the situations would ultimately result in unemployment. Similarly, the company would not be in a position to expand its operations. Hence the number of fresh employment positions that would be created by the company would also take a hit. This would also cause unemployment.

Recessions are often associated with downturns in the gross domestic product (GDP) of countries. The current recession, which affects most of the world, was sparked by events in Asia, but has since included many other nations in its effects. Many companies are finding that they are caught between the benefits of the recession (lower prices for components) and the problems associated with the recession (lower prices for competing products).Certainly, a sufficient proportion of the world's economies are current in recession to warrant an assessment of the potential of this situation to affect future employment levels.

Just as there are different types of employment - with their various impacts on the economy - so, too, does unemployment vary. So, do the economic theories differ in their interpretations of the character of unemployment and, more importantly, in their responses to unemployment.
There are three basic forms of unemployment:

• Frictional unemployment arises from the "normal" process of turnover in the labor market: as new workers enter the market , and as existing workers quit the jobs.
• Cyclical unemployment is that which varies with business conditions; for example, workers are laid off when business is bad - then rehired when conditions improve.
• Structural unemployment caused by imperfect labor-market adjustment, i.e. workers and resources do not move freely to places where they are needed.

A recession in 2008 would raise the national unemployment rate by between 2.1 and 3.8 percentage points. According to Cepr, the unemployment rate and the number of unemployed - based on the historical pattern - would continue to increase through 2010 (to 6.7 percent in the case of a mild-to-moderate recession) or 2011 (to 8.4 percent in the case of a more severe economic downturn).

The last few weeks have seen a remarkable degree of consensus across most of the economics profession around the need for a sharp short-term stimulus to the economy. The goal is to avoid a recession or, in the likely event that that isn’t possible, to make the recession shorter and more shallow. By one rule of thumb, the unemployment rate has now risen enough to send a reliable signal of recession.

The nations are held at the binary decision of are we or aren’t we in recession which is a meaningless exercise, as they are not in a position to realise the fact that the unemployment rate has risen meaningfully and is apt to continue going up which implies that the economic environment is weak.All the industries irrespective of its quarter performance have rung the bells for the unemployment rate to increase significantly and the same would continue to rise in the coming 2 years ahead.

A good news packed within a bad one

The US economy is set to emerge from recession in the second half of this year as consumer spending and the housing sector recover, but 2008 turned financial heroes to zeroes unemployment will rise well into 2010, according to a survey.

The Blue Chip Economic Indicators survey of private economists released showed that 86 percent of respondents believed that the economic downturn would be declared to have ended in the second half.

"Real GDP contracted very sharply during the first quarter of this year and will continue to shrink, albeit more slowly in the second quarter before turning very modestly higher in the third and fourth quarters," the survey said.

Much of the anticipated turnaround in the economy, now in its 16th month of recession, would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet, above-trend growth was not expected until the second half of 2010.

Gross domestic product plunged at a 6.3 percent annualized rate in the fourth quarter of 2008, the steepest quarterly decline since 1982. The economic downturn will next month become the longest U.S. recession since the Great Depression.

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Reuters-Gold,high on safe-haven buying

Gold futures continued their record-breaking spree as investors poured money into the safe-haven asset due to a deepening global recession, analysts said. The benchmark April contract witnessed an all-time high of Rs 15,780, before trading 1.81 per cent higher at Rs 15,735.

In 2008, gold soared to its year-high of 14,320 rupees, up 35.1 per cent from its 2007 close, before falling to 11,290 on Oct 24. Gold has more than doubled since 2004. ""Technical breakout has already taken place at 15,676 and there could be further technical buying," Rahman added. Buying is recommended on lower levels of Rs 15,690, with a target of 15,775 and with a stop loss of 15,630, Rahman added.

Interesting--Salaried crorepatis double in 2 years !!

When on one hand the world’s hit with the global recession and where every now and then exists a fear of another bank being getting collapsed, on the other hand the number of taxpayers earning more than Rs 1 crore annually has doubled in just two years. And, for this increment the credit truly goes to the buoyant economic growth. Corporate sales and profits have risen by more than 30% in the last few years. That has encouraged companies to pay record salaries to their top managers, say tax experts.

According to data compiled by income-tax department, the number of salaried taxpayers earning more than Rs 1 crore (Rs 10 million) crossed 5,000 in fiscal 2008 from 2,200 in fiscal 2006. The total number of millionaires is much higher as it includes non-salaried taxpayers. The data on millionaires, gathered from employee tax deducted at source (TDS), shows the number of people earning between Rs 50 lakh and Rs 1 crore per annum has also more than doubled. It has increased from 4,400 persons in fiscal 2006 to 10,500 in fiscal 2008. The number of those earning more than Rs 10 lakh also increased to 2.24 lakh in FY08 from 87,000 in FY06.

Talking about the millionaires in India, the majority earns between Rs 10 lakh and Rs 20 lakh. In 2007-08, more than 1.5 lakh employees were earning in this income bracket. That is a 250% jump over 2005-06 .While TDS from those earning more than Rs 1 crore was Rs 4,415 crore, and those between Rs 10 lakh and Rs 20 lakh was Rs 5,770 crore. The number of taxpayers earning between Rs 5 lakh and Rs 10 lakh has also doubled in the last two years.(Source:ET)

But this pace may slow down in 2009-10. India’s GDP grew by 7.8% in the first six months of fiscal 2008 from over 9% in the previous year, and corporate bottom lines have also seen a similar dip.So,that will put pressure on salaries.

Denmark to enter recession in 2009

The Danish government slashed its growth forecasts for 2008 and 2009, predicting that the economy would contract by 0.2 per cent in 2009 after growing 0.2 per cent this year. 

"Financial turbulence and the weak international growth outlook will along with the wavering housing market and weakening competitiveness lead to weak GDP (gross domestic product) growth in coming years," the Finance Ministry said in a statement. 

Denmark's economy is not expected to grow before 2010, when its GDP should rise by 0.7 per cent.The government also said it now expected Danish unemployment to double from this year's 1.7 per cent to 3.5 per cent in 2010. The Danish economy can not avoid being affected by the global financial crisis and the poor outlook abroad.