The Human Cost of Recessions: Assessing It, Reducing It

28 Pages Posted: 21 Nov 2010

See all articles by Prakash Loungani

Prakash Loungani

International Monetary Fund (IMF)

Mai Dao

International Monetary Fund (IMF)

Date Written: November 19, 2010


Recessions leave scars on the labor market; the Great Recession of 2007-09 has left gaping wounds. Over 200 million people across the globe are estimated to be unemployed at present. Among countries with unemployment data in the IMF’s World Economic Outlook (WEO) database, there has been an increase of over 20 million unemployed people since 2007. The ILO estimates that globally the increase is over 30 million.Labor markets remain in a dire state. Nearly three-fourths of the increase in the number of unemployed people during the Great Recession has occurred in the “advanced” (i.e. high-income) economies. Youth unemployment and long-term unemployment have increased substantially in most advanced countries.

If the effects of past recessions are a guide, these developments can exact a heavy human toll. The cost to those who get unemployed could be a loss in earnings not just today but persisting 15-20 years into the future; reduced life expectancy of 1 to 1.5 years; and lower academic achievement and earnings for their children. And unemployment is likely to reduce social cohesion, a cost that all will bear.

To their credit, most countries mounted a strong three-part policy response to try to minimize these costs. Broadly speaking, the response had three parts: (i) support aggregate demand through monetary and fiscal policy actions; (ii) ease the pain in labor markets through short-time work programs and provision of unemployment insurance benefits; (iii) accelerate jobs recovery through the provision of subsidies of various kinds. The three-part strategy adopted during the crisis should remain in place in the near-term, though the relative importance of the parts should shift over time as - and if - recovery takes hold. And the relative importance should differ across countries depending on their specific circumstances.

Suggested Citation

Loungani, Prakash and Dao, Mai, The Human Cost of Recessions: Assessing It, Reducing It (November 19, 2010). Available at SSRN: or

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

Mai Dao (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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