Question

Describe who gets hurt in a recession, and how.

Short answer

Both the employees and firms get hurt by the recession. Employees lose their jobs and are forced to a lower standard of living while the firms undergo abnormal profits.

Step-by-step solution

Employee loss by the recession

During a recession, the unemployment rate rises high, and jobs are scarce. It diminishes the standard of living for many individuals, and the ratio of people living below the poverty line increases. Thus, the labor market sees severe downfall and losses.

Damage to the firms due to the recession

Talking about the firms, as the aggregate demand falls during a recession, the firms tend to reduce the labor and the output. It reduces the firms’ profit. Many small-scale businesses are even forced to shut down.