Thursday, August 27, 2009
Recession of 1982
Recession narrative In this video, I will analyze the recession of 1982, the worst recession since WWII. What happens to real GDP during a recession? Here I have created a graph using FRED data series GDPC95. The shaded bars represent recessions as dated by the National Bureau of Economic Research. You will observe that real GDP falls in each recession. The 1982 recession was no exception. From January 1, 1979 until December 1, 1982 GDP fell 6.4%. Clearly, GDP falls during a recession. GDP is made with labor resources. What happens to the unemployment rate during a recession? The data shows that during this time, unemployment rose from 5.4% to 9.7%. You can see that the unemployment rate rises during a recession. What happened to housing during this recession? The data shows that housing starts fell off the deep end during this recession. What type of workers was hurt by this decline in investment? Men usually work in the construction industry. As less homes were built, men were laid off not just from construction but all of the trades, factories, and mining. During this time of high unemployment, labor force participation for women more than offset the decline in men and teenagers participation rate. Many reasons are given for this including labor saving devices such as the microwave oven. In the textbook, Modern Macroeconomics, the authors explain that the pill contributed to the increase in women’s participation rate in the labor force. Working with data allows researchers a look at the changing demographics of the recession. Certainly there are more variables involved in the recession than what I have covered here. But the data I have used does confirm economic theory which predicts a decrease in GDP, employment, and an increase in the unemployment rate.