A recession occurs when there is a temporary economic decline during which trade and industrial activities will face a decline. A recession is generally seen as a fall in gross domestic product in two successive quarters.
Recall that the recession period is not the best time to graduate as a student; you don’t want to graduate with a degree and live on, hoping things get better.
The effects of recession on a nation vary, but they all have one thing in common, which is the loss of money for everyone, both the citizens and the government. The recession’s effects are included but not limited to unemployment, falling average incomes, increased inequality, and higher government borrowing.
Here is what you must know about graduating during a recession.
Various Potential Effects of Recession on Graduates
Here are a few of the aspects to be aware of for those who are graduating during a recession. Recall that a recession hurts everyone and graduates are not the only ones who are affected by the situation. As everyone is hurt, the job environment changes, incomes change, and different dynamics take place within the recessionary nation.
Unemployment is A Critical Point
Recession leads to a fall in economic output, which in turn causes a rise in unemployment. This is because there will be companies that will become bankrupt as a result of the recession.
This will cause them to lose their workers. The companies not affected by bankruptcy will have to lay off their staff, while companies hanging on by a thread will have to cut back on hiring new workers. The result would be a significant increase of labor without the demand to back it up.
Further, one would notice that there are other issues at play. For instance, one may not find a job in the field that they studied for because of the lack of resources present within that industry. It is true that one may see more competition for fewer jobs and employers would have the upper hand in such an environment. Finally, more individuals see a stagnation in wages and lower quality of work life balance as companies seek to obtain more productivity from their employees.
Falling Average Income
Another effect of recession is the falling average income. In a bid to survive in a recession, most companies have to cut back on their wages. This in turn, affects the overall average income in the country.
During a recession, inequality and relatively tend to become worse. This is indirectly caused by the unemployment rate, which will increase drastically during a downturn.
Higher Government Borrowing and Increased Stimulus
The government tends to borrow more during a recession due to the following factors:
- Lower Income Revenue
- Higher spending budgets
In a recession, government revenue is shortened since there is a fall in tax revenue which is caused by various factors, all of which include but are not limited to:
- Loss/reduction of corporation taxes from companies
- Loss/reduction of income taxes from the citizens
- Reduced stamp duty revenue due to lower house prices and fewer housing transactions
- Reduced expenditure, which leads to lower VAT payments
- Increased government spending on welfare payments, such as unemployment benefits, housing benefits, other types of assistance
These are all aspects to be aware of because it means that the government will also have to rely on the future to obtain more economic value. At the same time, that means that the government will likely have to mortgage the future.
To be clear, you will see increased government debt, deficits, and increased spending. That is why individuals talk about recession fears, inflation fears, and general insolvency in recessions. If the government takes on more recessions and responds with stimulus, the people will eventually see more devaluation in the currency. Especially if the government keeps on taking on more debt.
A budget deficit may increase if the government decides to pursue expansionary fiscal policy and attempt to stimulate economic activities.
When talking about recession, it isn’t just the government and the people in the job market that are affected.
Remember that government spending drives a lot of private market activity. Various people participate in the private markets, the young and old alike.
There is also a specific group of people who are vastly affected by the recession that is not often discussed. This group belongs to the newly graduating youths who are entering the job market. The question here is, what are the consequences of graduating during a recession?
What are the Consequences of Graduating in a Recession?
Like every other person living in a country, recent college graduates are affected by the economic conditions that prevail after graduating. But how does it affect them? What are the effects of graduating during a recession? How does their situation differ from the graduates who graduated during an economic boom?
The first thing to know is that during the first ten years of entering the labor market, individuals tend to experience 70% of their wage growth, switch between jobs a lot and finally settle on a niche. It can therefore be said that the first ten years are very crucial for the development of a graduate’s career.
It is no news, nor will it come as a surprise that college graduates who start their workplace journey in a robust economy are luckier than graduates who dip their toes into the employment market when the economy is in shambles. This is because more job opportunities are available to them, while those who graduated during a recession have to cope with a smaller job opportunity pool.
First, the first thing to know is that graduating in a recession leads to significant early income declines. These income declines, which amount to over seven percent of annual earnings in the initial stage, eventually recede, but very slowly — halving within five years but not disappearing until about ten years after graduation.
Compared with those who graduated during a period of economic prosperity, graduates who start their working journey during a recession earn less than their counterparts for over eight years before things finally even out.
Not only do they earn less but, their career trajectory has a higher probability of spiraling downwards than improving due to the weakened state of the economy.
Random Initial Shocks Send Ripples
The issue is that a recession can have an initial impact on the individual. But it can have lingering effects throughout the life of the individual. For instance, those who are graduating in lower economic growth will find that job prospects are not as certain as they used to be for so many others.
Many of these individuals will realize a lower quality of earnings and see that they are not as happy in their present jobs. At the same time, they must work in these jobs to sustain their basic level of living.
They may find that they have to work more hours or take more risks when their other counterparts in good times did not have to do so.
Workers may settle for jobs in new name firms that are starting up themselves. At the same time, these individuals may job hop regularly to try and get better benefits. As such, they may not learn as much as they would by finding a good company and sticking with them for a while.
Of course, luck plays a large role as well. But it does not play a big role in an environment where each part of the economic system is a little tighter. For instance, think about it like this.
Did you know that in good times, it is easier to spend time networking, spending time with others, and improve your chances of finding amazing opportunities. In good economic times, individuals see that more parts of the economic system are solid. As such, one can see more opportunities in more ways than one.
But in negative economic situations, one must optimize for safety, stability, and minimize risk taking, or spending time at events and other places where opportunities could arise and connections could be made. If you find yourself at the lower tier of the earnings ladder, then you will notice that you might have more turnover and other factors that affect your chances of peace and tranquility as you seek to improve your position.
Individuals Must Prepare to Succeed in a Recession by Doing Several Things
The main way to succeed and keep an overall quality of life during a recession is to have the right skills. The first step is to ensure that you are valuable in any climate and that your job is relevant no matter what. If you have hard skills that matter to large corporations and small corporations, it is hard to discount you and your value. If you have hard to pick up skills, you are even more valuable, especially if they are in high demand in a low supply market.
The next point to realize is that connections do matter in any situation. You must always find ways to increase your network and work with people who can teach you, help you, and accelerate your growth in the marketplace. Remember that networking is not about you but how you can help experts and grow alongside them. Find ways to help with projects, learn about industries, and get better to become a valuable resource in a network. As such, you open up opportunities and can thrive during a recession.
It will take a lot of work to succeed and move past these recessionary factors, but you must ensure to think hard, work better to move past the various factors that can hold you back in a recession.
There is no need to lose hope but you must ensure to take the right actions to minimize potential risks.