Negative Impact of Economic Recession
By Tejvan Pettinger on September 11, 2012 in economics
A recession means a fall in GDP / national output. A recession will typically be characterised by high unemployment, falling average incomes, increased inequality and higher government borrowing. The impact of a recession depends on how long it lasts and the depth of the fall in output. The great recession of 2008-12 has shown many of the negative impacts of recession.

Unemployment

Not everyone is affected equally by a recession. A fall in GDP will cause a rise in unemployment. This is because: • Some firms will go bankrupt meaning all workers lose their jobs. • In an effort to reduce costs, firms will cut back on hiring new workers. Therefore, unemployment often affects young people the most.
In this recession, unemployment in the UK has risen to over 2.6 million, though given the depth of the recession, you might have expected it to be even more (e.g. in 1980s, unemployment rose to over 3 million). However, in Europe, many countries in recession have seen a catastrophic rise in unemployment. With rates of over 20% in countries such as Greece, Spain and Portugal.
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Rise in Spanish Unemployment. Source ECB

Lower wages

Firms will also try to reduce costs by keeping wages low. Some workers (especially temporary workers without contracts may see wage cuts) This has been a key feature of the 2008-12 recession, also aggravated by rising costs of living. With cost push inflation, nominal wages haven’t kept pace meaning UK workers have seen substantial cuts in their real wages. Another cause of lower wages is under-employment. Some workers may keep their job, but see their hours cut. Rather than working full time, they become part-time workers (e.g. 20 hours a week). This means that the rise in unemployment may be muted, but many workers see