Question

4) What happens to employment and wages in a Recession? What labor group is disproportionately affected by recessions? What happens to bankruptcies in a Recession? What happens to housing prices in a Recession?

Answer 1

Recession is that phase of the business cycle when the economic activities are slowing down in the economy. Thus the transactions decrease to an extent that the real output of goods and services decrease. In this period, lesser demand for goods and services are observed and therefore the firms start making losses. In order to compensate for this, businesses lay off workers thus there is a rise in the unemployment rate. As a result of this job loss, the quantity of supplied labour increases in the market whereas the demand for labour is not at par. Thus wages tend to fall further down.

In the recessionary phase of the business cycle, a major chunk of the population are laid off from their jobs and this continues for a long time. The most affected population are the lesser skilled workers in firms, the vulnerable daily wage workers, the people working in small business firms etc. Thus these group of people are affected the most during this phase.

In such recessionary phases, bankruptcies provide time to the businesses to come back to its original position and combat the post situation by managing the financial resources in an optimal way. Thus in these times, companies often go bankrupt to save its back from the creditors and reallocate it's resources after the recessionary phase is over.

In such a phase when the real GDP is reducing and economic activities come to a halt, the demand for housing tends to decline. Thus the prices tend to increase because of the mismatch between the demand and supply conditions of housing. However in certain cases, if the recession enters into the real estate market then the impact on housing prices would be different. In other words, the housing prices would also increase in such recessionary times.