What Effect Does Recession Have On The

Construction Industry, Essay, Research Paper

.What Is this Affect, And How could a small Firm Survive During These Periods.A 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.. 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:

(for business cycle dates see appendix 1) 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

organisations 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. They are able to expand using the

unemployed resources that are then available. 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 it.s workers. I will then

examine why this happens and how I feel businesses within the industry could

manage to survive during this time. 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 as mentioned above. With

disposable income decreasing we see the demand for luxury items decreasing and

thus a fall in earnings in the construction sector. Price 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

business. The first has been in the industry for 45 years, and was affected

very badly by the recession, which peaked 5/90 when he worked for the

organisation Bovis. The second has been in the industry for 27 years and was

self employed during this same spell, and was also very badly hit. To begin with I will

examine worker 1 who was employed by Bovis at this time. When I asked him about

how the company responded to decreased demand during the recession he commented

on the redundancies made in great detail. This was the most major cut-back made

by the firm, and he was one of those that was made unemployed, which also

coincided with the closure of many of the companies sites. These two diagrams

above show the problems of unemployment such as that described by the Bovis

workers in the recession of 1992. As can be seen as the trough hits an all time

low, unemployment reaches a high of 3 million. Then as we head out of the

recession unemployment begins to decrease. This is exactly what happened in the

construction industry, which we can now see experiences what is known as

cyclical unemployment, which is directly associated to the period of time

relating to the trade cycle. This can be seen in appendix 5. Here we have the

accounts for 2 construction companies, Barratt Developments and Alfred

McAlpine. If we look at the periods dating back to 1992 then we can see that at

this stage both firms were experiencing times of negative growth of sales. For

Barratt we see .19.6% in 1991, leading up to the depression, then .5.9% in

1992, -7.5% in 1993, until we move back in to positive figures in 1994. This

links with the number of employees, where we see the trend of cyclical

unemployment taking place. In 1991 they have 3,000 employees reduced to 2,400

in 1992 and then 2,200 in 1993, until in 1994 the figures begin to rise again.

Much the same happens in the figures for Alfred McAlpine. So, those employed by

larger firms became unemployed, but what about those self-employed in this

industry. According

to the second person I interviewed they

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