Microeconomics

Recession is a decline in overall business activity. During a nationwide recession, a country suffers a drop in buying, selling, and production, and a rise in unemployment. A recession may also hit an industry or a region. Historically, nationwide recessions have also brought an end to severe inflation or even a fall in prices. A recession hurts countless people, especially the workers who lose jobs. (Rothbard, 1991)

Most recessions occur because the total amount of spending in the economy drops. For example, if sales rise more slowly than usual, businesses may reduce their orders for new goods. The manufacturers that supply the goods cut back on production. They need fewer workers, and so layoffs and unemployment increase. Workers have less money to spend, which further decreases the demand for goods. As this pattern spreads, a recession begins. Below is a diagram showing the business cycle: The collapse of some companies during a time of recession is part of the customary business cycle, and some people reason that this is the way capitalism works. By allowing some companies to falter, because they are unable to compete in the world market, we ensure only the best organizations survive. This survival of the fittest model of business operations is what ensures that there are gaps in the market for new firms to set themselves up when the upturn occurs. The problem with this theory of market forces is that occasionally the downturn in the cycle is so severe that profitable and efficient businesses become insolvent. This results in the economy not having the capacity to thrive once it takes an upturn during a recovery. What I will now look at is how this business cycle affects the construction industry in particular, and its workers. The building industry is particularly renowned for struggling during times of recession due to the fact that construction is generally regarded as a luxury item. As recession takes a firm grip of the economy we then see a fall in income in the economy. With disposable income decreasing we see the demand for luxury items decreasing and thus a fall in earnings in the construction sector.

Basically, this is why the construction industry is affected so badly by recession. What I will now examine is what exactly is the effect of the recession on the firms within the industry. To do this I questioned to people who work in the construction ...