Q&A: Seven Questions on Unemployment through the Prism of the Great Recession

• Author: Prakash Loungani
• Pages: 6-17

IMF Research Bulletin

6

The Great Recession of 2007–09 led to a

worldwide increase of 30 million in the

number of people unemployed, with about

half of that increase among advanced

countries. This article discusses the fac-

tors behind this rise in unemployment, the

reasons why countries such as Germany

experienced little increase in unemployment while others were

hit hard, whether policies were able to stave off an even worse

outcome, and what the prospects are for labor markets in

advanced countries.

Question 1: What was the unemployment experience

during the Great Recession?

e global unemployment rate rose from 6 percent in

2008 to 6.8 percent in 20 09, based on statistics for countries

monitored by the I MF’s World Economic Outlook, but there

was considerable variation among count ries.

• Variationacrosscountry groups: The impact was more

pronounced in advanced economies tha n in others. These

economies accounted for half of the increa se in the num-

ber of unemployed people between 2008 and 20 09. The

unemployment rate went up by 2 percentage points in the

advanced economies, by about 0.5 percentage point i n

emerging markets and ba rely budged among low-income

countries as a whole (Figure 1).

• Variationamongtheadvancedecon omies: Spain, Iceland,

Ireland, and the United States ex perienced the larg-

est increases in t he unemployment rate in 2008– 09.

But countries like Ger many, Korea, and Norway went

through the Great Reces sion with hardly any i ncrease in

unemployment (Fig ure 2).

Question 2: What accounts for cross-country differences

in unemployment during the Great Recession?

ree factors are likely at play in a ccounting for the cross-

country variat ion (IMF-ILO 2010; IMF 2010a, 2010b; OECD

2010; Elsby, Hobijn, and Sahin 2010; Vitek 2010; Dao and

Loungani, 2010):

(i) the extent of the drop in output;

(ii) structur al bottlenecks in certain s ectors or other

mismatches;

(iii) the impact of macro and labor market policies .

Seven Questions: Unemployment through the Prism of

the Great Recession

Prakash Loungani

Q&A

0

2

4

6

8

10

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Advanced Emerging LIC

Change in Number of Unemployed People

2008-09 (in millions)

0.0

0.5

1.0

1.5

2.0

2.5

Advanced Emerging LIC

Change in Unemployment Rate 2008-09

World

5.0

5.5

6.0

6.5

7.0

2007 2008 2009 2010 2011 2012

World Unemployment Rate

Figure 1. Unemployment by Country Groups 2008–09

Source: World Economic Outlook Database.