The Impact of the Global Financial Crisis on Employment - Essay Example

It is significant to understand that even though countries might be located in the same region, they may respond variously to financial crises and may have different capabilities to withstand their impacts. The section following the literature review will be dedicated to econometric results that will analyze the impacts of the financial crisis on key labor market performance indicators such as unemployment and employment rates. In investigating the severity of financial crises for economies at different levels of development, a re-estimation will be done on a model for sub-samples obtained from different income groups plus additional 15 transition countries (Griffith 2000).

The financial crisis is an economic situation that relates to a panic in the banking sector and includes significant financial and production sector losses, leads to chaos in the international market, creates the downfall of the stocks in the market, financial bubbles, currency crises as well as foreign loans and also leads to sharp declines in economic activity and has a huge potential of creating an economic recession (Marelli, Patuelli & Signorelli 2012). The 2007-08 financial crises affected the whole world.

The Global financial crisis started in 2007 with ‘the subprime crisis and then quickly propagated into the financial system and the banking sector of other countries as a result of global diffusion that involved sophisticated financial instruments. In 2008, the extending disruptions in the working of credit systems and banks, the deterioration of expectations, and the confidence crisis led to the initial real effects that were felt in the economy. It also led to a decrease in levels of activity and productivity levels as well as a reduction in investments and consumption and a fall in international trade.

The financial crisis experienced in the 2007-08 financial year also persisted in 2009, and this was coupled with widespread consequences.