Back in the depths the global financial crisis in 2009, the International Labour Office announced that global unemployment had reached the highest level on record. More than 200 million people, 7 percent of the global workforce, were looking for jobs in 2009.
It was not a coincidence that the global economy experienced the most severe case of unemployment during the worst economic crisis since the Great Depression. Unemployment is highly dependent on economic activity; in fact, growth and unemployment can be thought of as two sides of the same coin: when economic activity is high, more production happens overall, and more people are needed to produce the higher amount of goods and services. And when economic activity is low, firms cut jobs and unemployment rises. In that sense, unemployment is countercyclical, meaning that it rises when economic growth is low and vice versa.
But unemployment does not fall in lockstep with an increase in growth. It is more common for businesses to first try to recover from a downturn by having the same number of employees do more work or turn out more products—that is, to increase their productivity. Only as the recovery takes hold would businesses add workers. As a consequence, unemployment may start to come down only well after an economic recovery begins. In fact, in the last three recessions, the unemployment rate continued to rise after the end of the recessions; a phenomenon called “jobless recoveries.”