Effects of the Great Recession - Essay Example

Effects of the Great Recession al Affiliation: Effects of the great recession The great recession is the term given to the period in 2008 when the US economy experienced a drastic unexpected drop in stock markets (Rajan, 2010). The great recession was caused by a combination of many factors. The major reason for the recession was the sub-prime lending by banks. This was caused by the fact that very few qualifications were needed for a loan to be given (Rajan, 2010). After the great recession had occurred, there were a number of implications that followed. This paper will discourse the effects of the great recession on the families, businesses, poverty, and employment levels. The effects of the recession were widespread, and its depth, and grim was felt by many American families. Many employed people were forced to face a job related hardship. Some experienced reduced wages, unemployment, reduced working hours while others were forced to start part time jobs. The average family net worth reduced drastically. Based on a report filed by the government, the average family net worth had reduced by the about 20%. The total income of families reduced by approximately 25% due to factors such as long-term unemployment (Rajan, 2010). With this situation, most families had little to spend and therefore their living standards went down. With the prevailing situation of jobs being scarce, family time was increased. The family members had much more time to spend together and hence family ties grew tighter. More people were seen in the beaches. The rate at which people volunteered was increased. The spirit of competition among families was replaced by cooperation. People began to coordinate more socially. The teenagers developed a teenage culture since they were unhappy with their parents being at home most of the time. The few people who were privileged to have jobs also faced negative effects. They worked for long hours and had little time for their families. The women had very short maternity leaves and hence did not have time to raise their children. Due to the economic constraints, the birth rate reduced. The rate at which people divorced was reduced since it was expensive to live without the other spouse. The recession period affected businesses of all kinds irrespective of their size or their economies of scale. During the recession, the gross domestic product reduced drastically. People were not able to find jobs, and hence their real income declined (Elsby, Hobijn, & Sahin, 2010). The lack of money to spend reduced the economic activities across the economy. Industrial production and manufacturing were low, and the situation was worse since even consumer spending was restricted. More than two-thirds of the population changed their spending habits so that they could fit into the limited budgets. Large businesses stopped expanding since business activities were low. Their profits and revenues reduced since the volume of sales had reduced (Rajan, 2010). Some shareholders suffered reduced dividends while others had their dividends slumped. Some organizations hired new managements in bid to rectify the situation. The rate at which companies reinvested was also reduced. The value of shares reduced since the business cycle was unpredictable and very few people were willing to invest. The amount of the money that company’s owed financial institutions increased since it became hard to finance all the expenses of the company. This meant the servicing of debts was crippled and hence business relationships were broken. After the great depression period, banks became more sensitive on the people that were given loans (Grusky, Western, & Wimer, 2011). This meant that few businesses were started up since there was no capital to start up new firms or even expand the existing firms. Creditors created very strict terms of agreement so that they have a conviction that their money would be paid back. Most businesses were forced to work with few employees so that they could operate profitably. Employees were laid off, and most of their benefits deducted since every business was looking for a war to minimize expenses. The quality of goods and services was reduced since the company’s neglected maintenance on the expense of cutting down operational costs. Few businesses were willing to spend on advertising and marketing. Due to this, customer access was reduced. Small business went bankrupt and ended up closing down (Grusky, Western, & Wimer, 2011). The great recession period led to an increase in the level of poverty in America. According to a write up by the census bureau, approximately 14.3% of all Americans were living in poverty in the year 2009 (Elsby, Hobijn, & Sahin, 2010). The rate of unemployment had increased and hence the poverty level had consequently increased. The negative effect of the recession on businesses forced some entrepreneurs to close down their businesses. Closure of businesses meant that the income of business people and their employees was cut down. With nowhere to turn to, such people began to live lives in poverty. The economic situation during the recession was discouraging for entrepreneurs (Rajan, 2010). Few businesses were started, and few businesses expanded. This situation led to a state whereby jobs were minimal, and income levels were also low. These factors contributed to the rapid growth of poverty levels in the country. During the recession period, most businesses were struggling to be profitable and were not in a position to employ many people. The rate of joblessness went up to 10.1% in October 2009 (Katz, 2010). It was estimated that about eight million people lost their jobs. This was because most of the managers let go their employees and were reluctant to hire due to the low business activity. Small businesses, which were the largest employer in the American market, lay off their employees in order to maintain working capital. The rate of unemployment was higher in men than in women. This was because industrial firms/blue collar jobs had employed many men and the harsh effects on these industries led to the laying of many men. The rate of frictional unemployment was also high (Katz, 2010). With the limited number of jobs, people spent a lot of time employed before they could get hold of other new jobs. Other people ended up being fully unemployed after being laid off. This not only contributed to increasing the level of unemployment but also to skyrocketing other factors such as poverty. The wages paid by employers were low since profitability of the companies was also low. Due to this, the employed people had a tendency of wanting to find better jobs. Due to this tendency, transition employees became many and labor turnover was relatively high. Conclusion The great recession period was one of the worst economic times that the American economy had ever experienced, it proved very difficult to recover and some of the effects are still felt to date. Families were affected both positively and negatively. There were able to have more family time which built god relationships between children and their parents. Businesses experienced very low profits, and they were not able to expand. In extreme cases, some businesses were even closed down due to continuous losses. The levels of poverty increased since incomes were low and finding jobs was also very difficult. Due to the prevailing business situation during the recession, businesses were no able to maintain their employees and hence many people were laid off. Due to the laying off of many workers, the overall level of unemployment increased. References Elsby, M. W., Hobijn, B., & Sahin, A. (2010). The labor market in the Great Recession (No. w15979). National Bureau of Economic Research. Grusky, D. B., Western, B., & Wimer, C. (2011). The great recession. New York: Russell Sage Foundation. Katz, L. (2010, April). Long-term unemployment in the Great Recession. InTestimony for the Joint Economic Committee, US Congress, April (Vol. 29). Rajan, R. (2010). Fault lines: How hidden fractures still threaten the world economy. Princeton: Princeton University Press. Read More