The Effects of current recession on US economy. Introduction Recession is defined as a decline in the value of all final goods and services produced within a country, which is referred to as the gross domestic product (GDP), for two consecutive quarters. The United States has experienced many recessions since 1945, and the most recent one being during the period of 2007-09. Though many of these recessions have been mild, the after effects of such economic downslides linger for a long time and every recession is followed by a period of expansion during which the country enters in to a more productive phase of development.
However, despite the expansion that has followed the last recession, both people and the government have been unable to resume their original form as prior to the recession as the last recession has left a long-standing mark on the country’s economy on the whole (Bijlani, n.d; Lynch, 2010). Some of the major after-effects of the current recession have been inflation, reduced median household income, and the rising unemployment rate (Beleva, 1997, Richebacher, n.d). Employment definitely gives a boost to an individual’s life and also helps them to contribute to the growth of the county’s economy.
However, unemployment brings with it several personal and social costs which only increase as the duration of the unemployment continue which in turn has serious consequences for both the individual as well as the society (Beleva, 1997). Unemployment not only affects the health and stability of an individual and his family, but it also affects the government as due to reduced tax returns from the citizens the government spending has been unduly affected due to this phenomena, which in turn has affected the educational opportunities of young children and hence their future (Lynch, 2010).
Along with the rising unemployment rate, the country is also being faced with reduced customer spending, increasing house prices, reduced investments and increased debts. Expert studies reveal an increased credit and debt addiction by Americans. In addition credit through Ponzi financing against existing assets has also increased the debt rate of the people in a big way as they tend to focus on the hidden interest.
This situation only adds to the credit and debt status while the net savings does not change. The consumer spending on consumer durables such as autos and household requirements has largely reduced which has been mainly attributed to reduced personal incomes. Additionally experts are also focusing on the current expansion in credit rates and they believe that this would in turn reduce further economic activity (Richebacher, n.d). Thus the recession has sets forth a series of effects both on the individual and the government economy. Unemployment due to recession is seen as a major issue as it affects the livelihood of an individual and indirectly affects the growth and economy of a nation.
A recent article by Cooper for Business Week has cited this jobless rate as the worst since the 1930s with the maximum number of job loss occurring over the past six months. A survey carried out by the Labor Department has only noted a weekly increasing jobless rate which shares an inverse relationship with the GDP or the gross domestic product. The growth of companies such as JP Morgan Chase has been severely affected due to the decline in GDP (Cooper, 2009).
It has been estimated that there has been about 6.9 million job cuts since the beginning of 2008 and the unemployment rate has been soaring ever since (Isidore, 2009). And, according to economic reports if the GDP reaches 3.5%, the unemployment rate could soar up to 8.5%. Such an increased unemployment has added an extra stress on the banking sector. Companies have also resorted to cuts in wage and fringe benefits in order to meet the economic crunch.
While recessions in the past have seen a rapid recovery in the aftermath the current situation is more unlikely to follow the same due to the higher healing time required by financial sectors this time around (Cooper, 2009). Worsening the situation is the increasing number of bank closures as they are expected to rise in the next couple of years due to the slow growing economy. Experts have attributed the bank failures to increased mortgages and infrastructure development loans given by the banks during the loan growth period.
However the recession has turned the tables with many organizations feeling the credit crunch and banks are finally becoming the worst affected. Failure to correct the credit expansion by these banks during the high growth period has resulted in an irreparable loss of funds (Barr, 2008). A widespread job loss is still being anticipated even in sectors that are showing promising growth such as manufacturing and construction, which have been hit badly due to the recession, and hence this has caused immense difficulty for teenagers to procure a job during summer.
The rise in unemployment depends mainly on the depth of the recession. The presence of a stable long-term unemployment can have serious consequences on the social, professional and economic status of the individual and also on the economy of the country. The professional work experience, skills and contacts, especially among youth, are affected as they are no longer able to compete in the labor market after long periods of unemployment. Economists have also shown that long-after the recession is over; people who lost their jobs during that period earned considerably less that those who had some form of employment (Lynch, 2010).
The inflation that occurs during the recession aggravates the situation and forces people to cut down their living expenses (Bijlani, n.d). Their living standards are also compromised as their incomes have reached a low level and they become dependent which could affect their mental stability or can be drawn towards drugs and other harmful activities. Among those who are married continuous unemployment has shown to increase divorce rates, family tensions and break ups and have worse effects on the health of the person (Beleva, 1997; Economic and Social Costs, n.d; McClelland and MacDonald, 1998; Lynch, 2010).
In order to procure jobs individuals may have to move to a different place or take up jobs which do not give any work satisfaction (Lynch, 2010). There are many social effects due to long-term employment as these individuals may be driven towards criminal or violent acts in order to earn money which has serious social consequences (Beleva, 1997). Studies have shown that there is a relationship between rising unemployment and crime (Economic and Social Costs, n.d).
It in turn affects the overall personality and psychology of the individual as it brings down their self-esteem and confidence. For those who are already in the lower income group, unemployment could result in serious financial consequences and family problems. Studies have shown that in houses where both parents were not employed had more health problems for the children, frequent arguments and disagreements and hosing related problems. The health of the individuals and their family members are compromised resulting at times in death and serious illnesses or mental problems.
Due to lack of proper education for the children from such households it irreversibly affects their future employment and career which in turn leads to behavioral problems such as alienation from household and engaging in illegal activities. Studies have revealed that children in families, which have been affected by recession, were less educated, less healthy and did not have a consistent work experience (Lynch, 2010). Thus both the individual and the family of unemployed individuals face social divisions in society. Long-term unemployment also affects the aged population due to lack of any assets and source of income which makes health related problems increasingly difficult to meet (McClelland and MacDonald, 1998).
Unemployment also adversely affects the growth potential of a country’s economy which is irreversible as the hours of labor which is lost due to unemployment can never be recovered. All these have an impact on expenditure, taxation and the level of government borrowing. Unemployed individuals receive benefits from the government without any tax returns and additionally unemployed individuals and their families tend to spend less and thus give back very little to the government.
Increased spending on behalf of the government can result in higher borrowing by the government thus increasing the country’s debt which in turn has resulted in the taxpayers paying dearly with increasing annual interest payments. Resources which had been used to train individuals who eventually quit the job are severely wasted and since the unemployed are unable to update their professional skills it also adds to the economic burden of the society (Economic and Social Costs, n.d; Lynch, 2010).
Recession has also affect investments in the stock market as people would not be willing to take the risk of investing in companies which may suffer losses due to the recession owing to their lack of confidence. With the stocks plummeting, companies which suffer huge losses need government assistance to bail them out of the situation. The bank loan interest rates have also considerable decreased, but due to the high liquidity crunch in the markets it would be difficult for people to qualify for a loan. This in turn has added extra pressure on the government funds.
Additionally the reduction in prices of commodities and stocks has resulted in increased competition among the players (Bijlani, n.d; Lynch, 2010). Surveys have noted that people are opting for a lesser pay-package to boost their family’s income and to reduce debt rather than remaining unemployed as people are fast realizing that unemployment would only worsen the scenario. Many of the unemployed individuals are young who seek jobs for a long time, especially in an age where they can show increased productivity.
Thus the work force can lose a younger and agile labor population as a result of recession. The number of part-time workers has increased considerably over the past two years as more people are opting for the same. More people are also opting for starting a business such as recruitment agencies which has an increased demand at present as more people are approaching such firms to help them secure a job. Even in such cases the businesses have become unpredictable owing to the recession owing to high fluctuations. Thus it is vital for people to remain employed to help them during this time of recession.
Meanwhile it is up to the government to spend wisely and release the stimulus packages to slow down the recession and boost the economy (Isidore, 2009). There is a lot of dependence on consumer spending and stimulus programs to better the situation and a positive improvement in the unemployment rates can add to faster recovery (Cooper, 2009). The consumer spending will have to increase in order to lower the inflation rate. Conclusion The economic impact of the current recession are far and many.
It is in the hands of the people and the government to take all the vital steps necessary to halt the economic downturn due to the recession. Introduction of nationwide employment schemes for those seeking employment as well as encouraging those who are interested in self-employment could be important measures that would help reduce the social and economic burden due to unemployment. Non-governmental organizations can also play a pro-active role in promoting programmes that help the long-term unemployed secure jobs or become entrepreneurs. Building social contacts will help to instill confidence within those who are seeking a job and hence effective coordination among governments, various organizations and the general public will help to deal with the unemployment problem (Beleva, 1997).
Governments should take measures to improve consumer spending and also to reduce its debts. Improvements in stock market and other investments over time will help the economy of the country to return to normalcy. References Barr, A. (2008, May 23). Bank Failures to surge in coming years. Livinglies. Retrieved November 19, 2010, from http: //livinglies. wordpress. com/2008/05/25/mortgage-meltdown-and-foreclosure-defense-bank-failures-expected-to-soar/ Bijlani, D.
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