Transcript Introduction - nceconomics

The Victims of the Recession
P.N. (Raja) Junankar
University of Western Sydney
and
IZA, Bonn, Germany
June 2009
The Victims of the
Recession
• 1. Introduction
• The Global Financial Crisis has now become a
Global Economic Recession
• Australia has so far done better than other OECD
countries, but we cannot escape the recession.
• The Government’s stimulus packages have helped to
maintain consumer and business confidence
• The First Home Owners grants have helped to keep
the housing market from collapsing
• It has helped to slow down the impact of the Global
Economic Recession.
• Indeed the resilience of the Australian economy to
external shocks has been quite remarkable (similarly
to the Asian Financial Crisis of a decade earlier)
1. Introduction
(continued)
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In a recession firms usually follow this pattern:
Stop hiring new workers
Put full time workers on part time
Part time workers have their hours cut
Start laying off workers/redundancies
Sometimes the firm goes bankrupt and closes down
and all the workers are made redundant.
1. Introduction
(continued)
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When a firm closes down
The building starts to fall into disrepair
The machinery is left to rust and depreciate
Workers are made redundant
Plant and equipment may be sold to another firm or
to the Third World, or recycled
• These are inanimate objects: they do not think!
1. Introduction (continued)
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The redundant workers skills also “rust” and become obsolescent.
But the unemployed workers think! They cannot be recycled or sold to
some Third World country!
They become disheartened, dejected, they fall ill with continued
unemployment.
Household income drops, problems arise in the household, arguments
take place between the unemployed worker and spouse
Children get upset because they have to do without things that their
friends enjoy.
Family life gets difficult
Sometimes it leads to family breakdowns, some unemployed workers
enter crime
Some lapse into depression and illness
This may lead to suicidal thoughts, and perhaps increased suicides
The costs of unemployment are significant and long term.
2. The Recession and
unemployment: some evidence
• If we look at the recessions of the early 1980s and
1990s we see that in terms of GDP growth the
recessions were short
• The 1980s recession was deeper but did not last as
long as the 1990s recession.
• However, the labour market response is slower and
much longer.
• For the 1982 recession it takes males six years for
Unemployment to get back to pre-recession levels
and thirteen years for the 1990 recession.
• For the 1982 recession it takes females five years
and ten years for the 1990 recession.
3. Who suffers?
The unemployed
• In a recession, long term unemployment
increases.
• They have a significant loss in income:
unemployment benefits are very low
compared to their previous incomes.
• The new start allowance is less than the
pension - why?
• Who are the workers most likely to become
unemployed and long term unemployed?
3. Who suffers?
The long term unemployed
• The Long Term Unemployed (LTU) are those workers
who have been continuously unemployed for 12
months or longer.
• After the 1980s recession the percentage of those
unemployed for more than 12 months never got back
to the pre-recession period! Another recession hit the
economy.
• After the 1990s recession it took LTU almost 15 years
for males and 12.5 years for females to return to the
pre-recession period.
3. Who suffers?
The unskilled and the young
• Unemployment is usually a very “undemocratic” punishment!
• Those who have unskilled jobs suffer high unemployment
• People who left school early (year ten or twelve) find difficulty
keeping or getting a job.
• The young who typically are the last in employment, are likely to
be fired first (Last In First Out)
• The young who are more mobile and leave a job are unlikely to
find another job easily
• The new entrants into the labour force, school leavers, college
and university students completing degrees find it difficult to find
jobs.
• The unemployment rate of young people is always very high
compared to “prime age workers”.
2. Who suffers?
Women, migrants, and the old
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Older workers who work in manufacturing, for example, who are made
redundant are unlikely to ever find another job
Anyone over 50 years of age who loses a job is unlikely to ever get a
job again.
Migrant workers who are unskilled or who have less experience in
Australia are more likely to lose their jobs
Women, who are usually part time workers find they lose their jobs or
have their hours of work cut.
Many of the unemployed have had previous spells of unemployment
Many of the long term unemployed leave the labour force, some move
to disability benefits.
There are big increases in the unemployment rates of the young and
old, and it takes a long time for the unemployment rates to come down
to their earlier levels.
In the 1990s recession it took 14 years before the 20-24 year olds
unemployment rate went back to the pre-recession levels. In the 1980s
recession it took about six years.
In the 1990s recession it took 13 years for the 50-59 year olds
unemployment rate to get back to the pre-recession levels.
3. Who suffers?
• Employed workers find that they are required
to work harder as there is a credible threat of
unemployment
• Even professional workers are worried about
losing their job and have to keep their bosses
happy.
• Work related stress would increase.
• Pensioners find their superannuation funds
have evaporated!
• Firms go bankrupt, and the owners suffer, as
well as the workers who lose their jobs.
4. Who benefits
from a recession
• People with secure employment (say about
90 % of the labour force) are better off:
• Interest/mortgage rates are low
• Inflation comes down
• Firms that are not affected by the fall in
demand can keep wages low
5. Conclusions
• The Global Economic Recession has a long way to run
• Unemployment has already started increasing from the middle
of 2008, or certainly since September 2008
• The massive fall in private investment last quarter suggests a
further slowing down of the economy and increases in
unemployment.
• Unemployment has significant social and economic costs for
society
• Unemployment is likely to increase and remain high for several
years.
• We need to have labour market programs to tackle the problem
of unemployment and long term unemployment, in addition to
the fiscal expansion.