Globalization, Unemployment and Recessions

What is the link?

· Meaning of :

Globalization:

Globalization is the system of interaction among the countries of the world in order to develop the global economy. Globalization refers to the integration of economics and societies all over the world. Globalization involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure. The goal is to increase material wealth, goods, and services through an international division of labor by efficiencies catalyzed by international relations, specialization and competition.

Unemployment:

An economic condition marked by the fact that individuals actively seeking jobs remain unhired. The level of unemployment varies with economic conditions and other circumstances. Unemployment is often used as a measure of the health of the economy. Unemployment is expressed as a percentage of the total available work force. The most frequently cited measure of unemployment is the unemployment rate. This is the number of unemployed persons divided by the number of people in the labor force.

Recession:

A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters.In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomics indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, while bankruptices and the unemployment rates rise.

· Link Between Globalization, Unemployment and Recession-

Discussion:

Globalization can be considered a structural change just as technological growth is. As such, the resulting job losses and wage reductions fall into the structural category of unemployment. Globalization is partially the cause of the reduction in good jobs for relatively unskilled workers. The other reason is the use of technology in a manner that makes unskilled labor less useful. Due to globalization the unemployment rate moves in the opposite direction as GDP growth rate. So when GDP growth is small, unemployment is high. Decline in GDP is called recession, When the economy goes into recession and workers are laid off, we have cyclical unemployment. Recession causes unemployment. As output and demand falls, firms cut back on hiring new labour. This leads to a rise in unemployment as there are less job vacancies. Also, some firms may have to shed labor through redundancies, directly creating unemployment. As unemployment rises, this can worsen the recession. The unemployed will have less income to spend leading to lower consumer spending, lower Aggregate Demand and lower growth rates. This in turn can lead to more job losses as firms have to cut back even further on employment level.

CONCLUSION:

The world today is so interconnect that the collapse of the subprime mortgage market in US lead to a global financial crisis and recession on a scale .it is the perfect example that states the link between globalization and recession, so that the impact of recession in US is seen globally in the other countries also, that further results in fall in GDP ,some firms may have to shed labor through redundancies, directly creating unemployment in the countries.

Reference:

http://economics.about.com

http://en.wikipedia.org