Recession Of Early 1990s Research Articles

The jobless recovery after the 1980–1981 British recession

Extensive research has been conducted on the concept of jobless recoveries and their potential causes, primarily focused on the United States from the 1990s. This paper finds that the prolonged employment downturn following the brief 1980–1981 recession in Britain qualifies as a jobless recovery and then investigates possible contributing factors: labor reallocation across industries, regional employment changes, and job polarization. The United States, which did not have a jobless recovery from the early 1980s recession, is taken as a comparison case. I find that the leading candidate explanation for this jobless recovery is the reallocation of labor across industries. This suggests an important role for structural change in the early 1980s recession and in jobless recoveries more generally.

‘Unemployed Breadwinners’ and ‘Working Mothers’: Male Breadwinner Nostalgia and the 1990s Recession in Australia

This article examines popular discourses about men, women and work in Australia during the early 1990s recession. The male breadwinner and the working mother have been the subject of much historical research, but less attention has been paid to the longevity of these gendered constructs in the early 1990s, a period in which economic reform and a prolonged recession reframed men’s and women’s relationships with work. Drawing on contemporary anonymised testimonies captured in social psychologist Hugh Mackay’s quarterly reports, along with statistical and media sources, I argue that the recession reinvigorated a discourse of male breadwinner nostalgia.

Price Dynamics in Public and Private Commercial Real Estate Markets

In this paper, we examine price dynamics, cycles and lead-lag relationships between private and public commercial real estate markets. We utilize wavelet technology to capture both the frequency and the time variations of a time series. We find that the long-run trend of prices in public commercial real estate markets is steeper than that of private commercial real estate markets. In addition, both short-term and long-term cycles are longer in the public market than the private market. We also find that the private market led the public market up until the recession of early 1990s and the public market has led the private market since then. Finally, we offer the first evidence of contagion between the two markets. We find that there is an increase in excess (high frequency) contagion between the two markets during periods of crisis, but not beyond the crises periods. An understanding of co-movements of real estate prices across these two markets is of crucial importance policy makers and for maximizing portfolio diversification benefits and managing risk.

The Asset Structures of Emerging Technology Providers

ABSTRACT The cash reserves of IT firms, which have been important providers of emerging technologies, have undergone increasing scrutiny as their market valuations have reached unprecedented levels. Coincidentally, no previous research has investigated the asset structures of IT firms at a time when their managers are facing constant pressure to develop and support ever more sophisticated emerging technologies. First, we propose an investigation into six categories of asset holdings to inspect differential strategies of IT firms. We are interested in exploring the nature of asset holdings among this important sector of the economy. Next, we will empirically test for changes in asset holdings over three economic event periods commonly referred to as The Early 1990s Recession, the Dot Com Era, and the Great Recession. Applying the theories of asset specificity and the resource-based view, we hope to provide insight into whether asset strategies of IT firms change over time.

Financial Volatility and its Economic Effects

I empirically investigate the economic effects of uncertainty about the performance of financial firms. More specifically, I focus on the simple standard deviation of stock market returns across financial firms at every quarter, referring to this measure as financial volatility. First, I show that the idiosyncratic risk highlighted by models with a financial accelerator channel is an important exogenous component of this measure. Then, using a dynamic stochastic general equilibrium model and structural vector autoregressions, I show that exogenous movements in financial volatility cause substantial and persistent effects in credit, investment, and GDP; account for about 20% of the variation in these variables; and have played an important role during the last two credit crunches: the early 1990s recession and the Great Recession. Additionally, I show evidence of a feedback effect between credit spreads and financial volatility.

On the Demographic Adjustment of Unemployment

The unemployment rate is one of the most important business cycle indicators, but its interpretation can be difficult because slow changes in the demographic composition of the labor force affect the level of unemployment and make comparisons across business cycles difficult. To purge the unemployment rate from demographic factors, labor force shares are routinely used to control for compositional changes. This paper shows that this approach is ill defined, because the labor force share of a demographic group is mechanically linked to that group's unemployment rate, as both variables are driven by the same underlying worker flows. We propose a new demographic-adjustment procedure that uses a dynamic factor model for the worker flows to separate aggregate labor market forces and demographic-specific trends. Using the U.S. labor market as an illustration, our demographic-adjusted unemployment rate indicates that the 2008–2009 recession was much more severe and generated substantially more slack than the early 1980s recession.

The Emotional Economy of Unemployment

Between May 1978 and December 1983, the sociologist Ray Pahl conducted seven extensive interviews with a couple from Sheppey that he called “Linda” and “Jim.” These not only informed a key chapter in Pahl’s classic book Divisions of Labour but also evolved into a uniquely intimate account of how a family used to “getting by” (though never “affluent”) coped with the hardships and indignities of long-term reliance on welfare benefits. Perhaps inevitably, fascinating aspects of Linda and Jim’s testimony were left unused in Divisions of Labour, primarily because they were marginal to Pahl’s principal aim of demonstrating how the state welfare system could trap a family in poverty. We deliberately retain the narrative, case study approach of Pahl’s treatment, but shift our focus to the strategies that Linda and Jim adopted to cope with the emotional and psychological challenges of life at the sharp end of the early 1980s recession. How they retained a strong orientation toward the future, how they resisted internalizing the stigmatization associated with welfare dependency in 1980s Britain, and how their determination to fight “the system” ultimately led them to make choices in harmony with the logic of the New Right’s free market agenda.

Political Parties and Social Policy Responses to Global Economic Crises: Constrained Partisanship in Mature Welfare States

AbstractBased on empirical findings from a comparative study on welfare state responses to the four major economic shocks (the 1970s oil shocks, the early 1990s recession, the 2008 financial crisis) in four OECD countries, this article demonstrates that, in contrast to conventional wisdom, policy responses to global economic crises vary significantly across countries. What explains the cross-national and within-case variation in responses to crises? We discuss several potential causes of this pattern and argue that political parties and the party composition of governments can play a key role in shaping crisis responses, albeit in ways that go beyond traditional partisan theory. We show that the partisan conflict and the impact of parties are conditioned by existing welfare state configurations. In less generous welfare states, the party composition of governments plays a decisive role in shaping the direction of social policy change. By contrast, in more generous welfare states, i.e., those with highly developed automatic stabilisers, the overall direction of policy change is regularly not subject to debate. Political conflict in these welfare states rather concerns the extent to which expansion or retrenchment is necessary. Therefore, a clear-cut partisan impact can often not be shown.

Antipodean Social Policy Responses to Economic Crises

AbstractIn this article, I analyze the social policy reactions to economic crises in Australia and New Zealand. After the financial crisis of 2008, Australia built its crisis management strategy around a large fiscal stimulus with a significant social policy component, whereas New Zealand did not. While the government enacted fiscal stimulus measures, the social policy component was small and the government soon returned to welfare retrenchment and workfare policy. Based on a detailed account of recent crisis policies as well as a condensed overview of previous crisis responses (to the 1970s oil shocks, the early 1990s recession and the Asian financial crisis), I discuss the contribution of a number of factors to explaining this difference between Australia and New Zealand. These factors include: idiosyncratic causes such as the Australian mining boom and the Christchurch earthquakes, partisan politics, interest group structures, political institutions and policy legacies. The analysis shows that the recent differences cannot fully be explained through idiosyncratic factors, as partisan ideology was already crucial in strategic policy decisions during the first months of the crisis. The historical pattern further supports this conclusion.

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country's stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modelled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, the UK and Japanese stock markets.

Spending for 'Anti-Poverty' Programs: Restoring a True Safety Net

Federal spending increases for what used to be known as “anti-poverty” programs — food, health insurance, housing, and income support — have become staggering. These programs grew by $100 billion during the eight years of the Bush administration (adjusting for inflation), but they grew by another $150 billion in just the first two years of the Obama administration. Total spending for these four safety net programs stood at $666 billion in 2010, a total larger than Medicare and just slightly smaller than Social Security and national defense. Some of these increases are justified by the deep recession that began in late 2007, due to higher rates of unemployment and poverty. But average benefits per person in poverty increased from $7500 during the early 1990s recession compared to $14,600 for the recent one (correcting for inflation). If all these monies and services were going to the poor, our question would be why the safety net became more costly. Most remarkable, however, and rarely discussed, is that much of the cost increase is explained by benefits going to persons who are above the official poverty line. Today, at least half of the benefits for food programs, Medicaid, and most income assistance programs are going to people who are above the poverty line as defined by the U.S. Census. Federal food program expenditures for 2010 totaled $95 billion, up from just $57 billion in 2007. Most of these expenditures were for food stamps ($68 billion). Of the 40.3 million persons receiving food stamps in 2010, slightly more than half, or 20.4 million, were above the official poverty line as measured by the U.S. Census. Of the 43.8 million non-disabled persons receiving Medicaid and CHIP benefits, fully 25 million are above the official poverty line. More than half of the recipients of Earned Income Tax Credits (EITC) and traditional welfare (TANF) are above the official poverty line. Of the major programs we reviewed, only the federal housing assistance program did not have a majority of recipients above the poverty line. Nevertheless, four out of ten persons receiving housing subsidies are over the line. The debate over federal budget deficits focuses unduly on Medicare and Social Security. The combined spending on anti-poverty programs, and their rate of growth, offers an alternative for reduced federal spending. While anti-poverty programs should clearly help those who are poor, the general public (and perhaps many in Congress) may not be aware that we are giving billions in benefits to persons above the poverty line. By bringing these programs into line with their original purposes, a safety net for the poor, we can save up to $200 billion per year — without reducing benefits for the truly needy.

Who Suffers During Recessions?

In this paper, we examine how business cycles affect labor market outcomes in the United States. We conduct a detailed analysis of how cycles affect outcomes differentially across persons of differing age, education, race, and gender, and we compare the cyclical sensitivity during the Great Recession to that in the early 1980s recession. We present raw tabulations and estimate a state panel data model that leverages variation across U.S. states in the timing and severity of business cycles. We find that the impacts of the Great Recession are not uniform across demographic groups and have been felt most strongly for men, black and Hispanic workers, youth, and low-education workers. These dramatic differences in the cyclicality across demographic groups are remarkably stable across three decades of time and throughout recessionary periods and expansionary periods. For the 2007 recession, these differences are largely explained by differences in exposure to cycles across industry-occupation employment.

Non-employment, age, and the economic cycle

We describe the relationship between non-employment rates and age in Britain and consider how this relationship has been changing with the economic cycle. Using data from the British Household Panel Survey for survey years 1991–2008 and Understanding Society for 2009, we show that non-employment rates have changed most for people in the youngest and oldest age groups. Young people have been hit particularly hard by the current recession and non-employment rates are higher now than during the early-1990s recession, especially for those without educational qualifications. Among older men and women, non-employment rates have been in longer-term decline and the current recession has had a less marked effect. Hence the U-shaped non-employment/age relationship has rotated clockwise over the last decade.

Has the Structural Break Slowed Down Growth Rates of Stock Markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country‟s stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modeled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, UK and Japanese stock markets.

The Fluctuating Record of Economic Regeneration in England’s Second-order City-regions, 1984–2007

Within the context of theoretical and policy debates about the new economic geography and an urban renaissance, this paper examines how far and in what way ‘Our cities are back’, as claimed by England’s Core Cities Group. It focuses on 1984–2007 employment changes for the eight Core Cities and their city-regions: Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield. These provincial city-regions are found to have suffered from the early 1990s recession relatively less than London, but then recovered more slowly. While they continued to gain jobs until 2007, their growth rate relative to the national average peaked in 1998–2002, which was also the only time that Core Cities themselves outpaced the rest of their city-regions.

Output and expenditure in the last three UK recessions

This article describes the main features of the last three UK recessions using the output and expenditure measures of Gross Domestic Product (GDP) to reflect supply and demand activity in the economy. The most recent recession saw a similar peak to trough fall in GDP as the early 1980s recession. Both these recessions, which coincided with a period of downturn in the global economy, were more severe than the early 1990s recession where the peak to trough fall in output was relatively modest. The services sector made a larger contribution to the latest recession than before, perhaps reflecting the growing share of the sector in total UK output and its strong growth in the years leading up to the downturn. Falling output of business and financial services were a particular feature of the most recent recession. Looking at the expenditure side, gross fixed capital formation, and in particular business investment, was a greater contributor to the fall in GDP in the most recent recession than in the early 1980s and early 1990s recessions.

Recession: good for health?

The bad news: The UK has now suffered five successive quarters’ declines in GDP. Over the year from September 2008 to September 2009, the economy has shrunk by nearly 6%. The first six quarters of the current recession now look worse than the recessions of 1979–83 and 1990–93. The economic output loss already totals the peak to trough loss experienced in the early 1980s recession, and still the economy has not yet reached a turning point.

Beyond Stop/go?: Explaining Australia's Long Boom

The pattern of boom and bust that characterised the Australian economy from the early 1970s to the early 1990s currently seems to be a thing of the past as Australia enters its sixteenth year of uninterrupted expansion. The expansion has lasted twice as long as those of the 1970s and 1980s, which raises the question--why has it happened? One way of approaching this question is to identify the factors that previously precipitated major slumps or recessions. The major recessions of the mid 1970s, the early 1980s and the early 1990s, were induced by monetary policy and a determination by the Treasury and Reserve Bank to slow an overheated economy. The first two policy-induced recessions were aimed primarily at fighting inflation. The recession of the early 1990s was a product of policy attempts to slow the economy in the face of a perceived current account crisis and domestic financial overheating, particularly the credit-fuelled asset price inflation of the late 1980s. The expansion that began in the early 1990s has also been characterised by large current account deficits and strong asset price inflation, particularly in the period since 2000. However, the policy response has not been sufficiently restrictive to generate a recession or even a significant slowdown in rates of economic growth. This is partly the result of greater confidence on the part of the Reserve Bank of Australia that the threat of inflation is under control and partly the result of a broader change of thinking about current account imbalances, which developed in response to the perceived policy errors of the early 1990s. According to the contemporary, 'consenting adults' view, current account imbalances are viewed as market outcomes which will only be problematic if prudential regulation is inadequate. Thus, the current account is no longer a target of monetary policy. The question of whether large current account imbalances will eventually generate increased vulnerability to adverse shocks, or whether the growing volume and sophistication of capital markets has rendered such concerns obsolete is central in addressing the sustainability of the current expansion. It may also be argued that the Reserve Bank has been more skilful, or luckier, in the present cycle than it was in the past and also that it has made better judgements than other central banks facing similar fundamentals, such as the Reserve Bank of New Zealand. This argument obviously raises the question of whether such superior performance can be sustained. In this brief article, we will discuss some of the issues regarding the contribution of changes in monetary policy to the longevity of the current boom, and their implications for the sustainability of continued expansion. We begin with an overview of monetary policy and its relation to inflation since 1970. Next we discuss changing views of the current account and their implications. Finally, some concluding comments are offered. Inflation, Financial Overheating and Monetary Policy Figure 1 charts CPI inflation against short-term interest rates since 1970 and indicates that periods of high inflation in Australia have often been associated with the imposition of high short term interest rates. This pattern is particularly clear during the 1974-5 recession and again in the early 1980s recession. The relationship breaks down somewhat during the remainder of the 1980s because the interest rate spikes of 1986 and 1989 both occurred amidst only modest increases in headline inflation and amidst more or less persistent falls in underlying inflation. As argued below, the high interest rate response of the late 1980s was primarily intended to fight other problems, such as domestic financial overheating and current account problems. [FIGURE 1 OMITTED] Australia's inflation problem, especially during the 1970s and early 1980s, was largely driven by pressures from labor markets. …

The Evolution of Fiscal Policy in Australia

This paper examines the evolution of Australian fiscal policy and the fiscal policy framework over the past quartercentury. Following the early 1980s recession, a sustained fiscal consolidation saw the general government budget balance (for all levels of government) move from a deficit of 3½ per cent of GDP in 1983/4 to a surplus of 1¾ per cent 5 years later in 1988/9. A severe recession in the early 1990s interrupted this process, and the budget returned to sizeable deficits which peaked at 4¾ per cent of GDP in 1992/3. The second half of the 1990s saw a repeat of the experience a decade earlier, with the budget returning to surplus in 1997/8. In contrast to the 1980s experience, however, the general government sector (for all levels of government) has recorded surpluses for the subsequent 8 years to the present. The paper outlines Australia's macroeconomic experience over this time and argues that there have been two significant medium-term factors motivating the extended periods of fiscal consolidation. The first factor, relevant since the mid-1980s, has been the large Australian current-account deficits since that time, and the associated build-up of net foreign liabilities. The second factor, which entered the public debate more recently, is a desire to provide fiscal policy flexibility to respond to the ageing of the population and the projected rising public cost of health services—both influences that are likely to be of increasing importance over the next generation or so. The paper discusses the introduction and evolution of Australia's medium-term fiscal framework which has been put in place to respond to these challenges.

The cyclical behaviour of inventories: European cross-country evidence from the early 1990s recession

This paper employs data for a panel of firms from France, Italy and the UK to study the effect of the recession of the early 1990s on inventory investment, controlling for cyclical fluctuations at the firm level. The results clearly show some common patterns across countries, pointing to the relevance of financial factors (namely, the level of leverage) in propagating initial recessionary shocks. Moreover, Italian firms, especially if ‘small and young’, seem more likely to suffer from a reduction in the value of collateralizable assets possibly originated by restrictive policy actions.