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The global impact of worldwide unemployment rates.

DOI 10.1007/s11294-011-9296-1

Published online: 17 April 2011 [C] International Atlantic Economic Society 2011

When analyzing different monetary and fiscal policies for the G8+5 countries, the results show that in both the short and long run, it is in the best interest of the governments to try their best to improve the amount of investment that takes place in their economies because this is the critical factor that will help these economies overcome the high unemployment and recessions they face. When the U.S. found itself in a recession in 2007, unemployment rates in the U.S. continuously began to rise, this was also the case worldwide. Rising unemployment rates since 2007 of the G8 countries (France, the United States, the United Kingdom, Italy, Canada, Germany, Russia, and Japan) have caused a negative GDP growth rate for these countries from March 2007 to March 2010. France's president promised to put all effort into helping France out of its long economic instability by reducing France's unemployment rate through the creation of more jobs. Similarly, President Obama also put the creation of jobs as a top priority for the U.S. A decline in the amount of investment has slowed the growth in technology and capital in the U.K., slowing its growth rate potential. Since the U.K. has also seen the level of aggregate demand plummet, GDP growth is falling, negatively impacting productivity and efficiency, lowering employment rates, and slowing down output growth. Italy's unemployment has risen to nearly 9% in 2010. Japan, which is known to be the second largest economy in the world, fell into one of the worst recessions it has ever experienced, much like the U.S. Though Japan's unemployment is the lowest of the G8 countries, it is still elevated compared to what it once was. An 8.7% unemployment rate in Canada is an 11 year high. Russian labor productivity is the lowest, and this explains high unemployment rate throughout the years, which has hurt GDP and production levels. The recession has even caused international trading to decline rapidly, resulting in a global recession and job creation, investment, and promoting global trading are critical.

Three of the eight countries show positive signs, with the U.S. and the U.K. experiencing a shrinking current account deficit and Japan with a growing surplus. The GDP growth rate is high in Japan, due to the declining total population and high productivity growth, compared to the other G7 economies. Three G8 countries are suffering from either a growing current account deficit (Canada, Italy and France) or a shrinking current account surplus (Germany and Russia), all of which is having a negative impact on the world's economic future. It is causing the world to have negative productivity rates, and the loss in demand is hurting export dependent countries. Due to the weakening demand from the U.S. and the U.K., European countries have experienced a decline in exports, combined with the fact that the euro exchange rate has grown stronger causing their exports to become more expensive for other countries to afford.

Five developing countries (Brazil, China, India, Mexico, and South Africa), unlike the G8 countries, have expanded aggregate demand, boosting their economies performance. The global recession has helped developing countries learn from this past recession and that is why these developing countries will be the new leaders when it comes to growth, proving the convergence hypothesis to be correct. The convergence hypothesis states that, while there is initially a large gap in GDP growth rates between less developed countries and industrialized countries, that gap will tighten and LDCs will converge with rich countries because LDCs can observe what works successfully and employ those same exact techniques for their economy. China and India significantly reduced their population growth rates, which is a critical step in the right direction for economic growth. Both countries also became more open to trade and investment, as well as improving their education system. GDP growth rates of the plus five countries are doing really well. India and China have increased consumer spending so that higher aggregate demand will help the economy grow. Both countries are trying to encourage people to save less and spend more of their income to help their economy. India's increase in output growth helped its economy to become more efficient, increasing the amount of trading that they took part in which has positively impacted the overall international community. The improved performance of these developing countries has placed pressures upon other developing economies, which will have a positive impact on overall global productivity levels.

Increasing consumer demand, encouraging trade, raising the amount of investment, and increasing government spending need to be the main goals of expansionary fiscal and monetary policies for the G8+5 countries in order to recover from recessionary periods.

S. Bahmani

School of Economic Development, College of Business Administration, Georgia Southern University, Statesboro, GA 30460, USA

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Title Annotation:RESEARCH NOTE
Author:Bahmani, Sahar
Publication:International Advances in Economic Research
Article Type:Report
Geographic Code:1USA
Date:May 1, 2011
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