Some people believe that recessions are neither good nor bad but simply part of the natural survival of the fittest in the business world. Actually, it is not true. In The Costs of Unemployment, the authors tell us both the good and bad influences of recessions.
Recessions will cause unemployment because of the loss of output and GNP. Some people may argue that unemployment is ¡°a part of the functioning of the economy¡±. They are partly right, for the unemployment is inevitable because of the dynamic economy. This kind of unemployment is called natural rate of unemployment©¤the sum of frictional and structural unemployment. However, this is only a part of unemployment. Because the firms ¡°cut back and produce less¡± when they experience recessions, they will employ fewer workers. Therefore, the unemployment rate rises. This increase in unemployment caused by recessions and depressions is called cyclical unemployment.
Recessions cause social consequences. During the recessions, the unemployed
suffers a lot. The authors say that many people lost their savings as the stock market
crashed and thousands of banks failed. What they can depend on is only the meager relief distributed by the government. In addition, ¡°prolonged unemployment may also bring with it a number of social and person ills: anxiety, depression, a deterioration of physical and psychological health, drug abuse, and suicide¡±.
Thirdly, ¡°recessions may lead to lost output in the future¡±. When the companies experience recessions, they will reduce their investment and produce fewer products. As we all know, the investment is very important to ¡°future economic growth and progress¡±. The more the investment is reduced, the longer we will spend on the growth of economy.
On the other hand, recessions also have some benefits. First of all, recessions may reduce the rate of inflation. Secondly, in order to get survival in the recessions, companies must take some measures, such as trimming waste, managing resources better, and so on. Those who are inefficient will be driven out of business. Therefore, the efficiency is increased. Finally, ¡°recessions lead to a decrease in the demand for imports, which improves a nation¡¯s balance of payment¡±.
All in all, this article shows that the recessions have both the good and bad influences. We can not simply regard it as a part of the natural survival of the fittest in the business world.