Post recession, initially, slow growth was due to the financial crisis and it’s after effect. But even after the recession ended and financial conditions are normalized, growth rate has remained below average. The slow growth rate can be explained by multiple factors as below:
Labor force participation rate: While the Unemployment Rate is calculated using unemployed as a percentage of the labor force; the labor force participation rate is the share of the population that is either employed or unemployed. This percentage captures the rate in which people are participating in the workforce. This does not differentiate between fully employed, part-time employed, or out there looking for a job. Since the Great Recession, the official unemployment …show more content…
This creates a vacuum in labor force which force the employers to increase their wages to attract talent. When this occurs, employers often have to increase their wages to attract quality employees. Higher wage cause business to cut down in investment. Which affect the real GDP downwards.
Low rate of productivity growth: The productivity measure is output per hour worked. Increased productivity shifts AS to right and increases real GDP. Even after a decade of recession, the productivity is still declining. Advent of new technology has a direct impact on economy. Post-recession, business cut down investment on research and development. Which affected productivity growth and cause slowdown in GDP growth rate.
Precautionary saving: Savings of households, governments and foreigners goes to Banks (indirect finance) or Financial Markets (direct finance), which are the input for Business Investment. Due to high uncertainty people have increased saving rates. Due to higher savings consumption became lowered and impacted GDP growth. This precautionary savings create safety net to protect against catastrophic loss of income or catastrophic increase in expenses which consumers saw during great recession. As business Investment (I) goes down, the GDP also have downside
Labor force participation rate: While the Unemployment Rate is calculated using unemployed as a percentage of the labor force; the labor force participation rate is the share of the population that is either employed or unemployed. This percentage captures the rate in which people are participating in the workforce. This does not differentiate between fully employed, part-time employed, or out there looking for a job. Since the Great Recession, the official unemployment …show more content…
This creates a vacuum in labor force which force the employers to increase their wages to attract talent. When this occurs, employers often have to increase their wages to attract quality employees. Higher wage cause business to cut down in investment. Which affect the real GDP downwards.
Low rate of productivity growth: The productivity measure is output per hour worked. Increased productivity shifts AS to right and increases real GDP. Even after a decade of recession, the productivity is still declining. Advent of new technology has a direct impact on economy. Post-recession, business cut down investment on research and development. Which affected productivity growth and cause slowdown in GDP growth rate.
Precautionary saving: Savings of households, governments and foreigners goes to Banks (indirect finance) or Financial Markets (direct finance), which are the input for Business Investment. Due to high uncertainty people have increased saving rates. Due to higher savings consumption became lowered and impacted GDP growth. This precautionary savings create safety net to protect against catastrophic loss of income or catastrophic increase in expenses which consumers saw during great recession. As business Investment (I) goes down, the GDP also have downside