If people may need to save money, the subscription to an online multi-player game may start to look like a bit of an indulgence. At the same time, there may be greater use of online auction sites, in search of a bargain.

A lot of businesses are riding on these decisions, and there are not really historical precedents at this time.

I’ve been thinking about structural changes not just in the labour market but also in terms of people’s attitudes to and subjective understandings of work (as the post indicates), and I think so much has changed since the last recession that a lot of assumptions about both effects and behaviours/attitudes will need some rethinking.

1. The nature of the credit squeeze suggests that savings will increase. In the current debt-fuelled environment, this will mean people paying off their credit cards. While the medium-term consequences of this are good, it will generate short-term pain. Hence the Keynesian focus of the budget stimulus package on pensioners, low-income families and the First Home Owners Grant (which i hate from an equity point of view): they are all more likely to promote spending rather than saving;

2. Structural changes arising from the ‘gales of creative destruction’ that Joseph Schumpeter talked about, and which accelerate in recessions. Some jobs will be gone due to technological changes, decline in the demand for the product or service, and globalisation shifting some jobs offshore (try buying an Australian made shirt or children’s toys these days). At the same time, new ones will emerge, as has happened since the 1780s;

3. What impact will recession have on the digital economy? The last general worldwide recession was 1991-92, which was particularly strong in Australia. We have not had a recession since most people got the Internet, so there is a real zone of uncertainty here.

Suppose I’m employed in full-time work. I read newspapers, I watch TV news. They say that bad times are coming. I think back to earlier bad times (not a recession, just a downturn). I guess unemployment may rise from 5% to 7%. That’s a real rise. It’s quite a substantial rise. +2 from a base of 5.

But it means an EXTRA 2% of my fellow-employed are likely to lose their job. Randomly distributed, that is only 1 in 50 of the population, or in terms of the currently employed, 2 in 95. So my chances of going from employed full-time to unemployed, are TINY.

OK, now re-do the figures with a much heftier rise, say from 5% to 9%. Still only a 4 in 95 chance of losing my job.

Caveats:
i) if I’m in a more vulnerable industry like car assembly, house building or tourism, I might be less sanguine.
ii) if my organisation looks like shedding staff, ditto.
iii) if I’m in casual or part-time work, I may expect my weekly hours to be reduced in a downturn; how would I then answer the survey questions?

“The economy” is certainly an abstraction, but interest rates, petrol prices, credit card statements, weekly pay slips, friends’ employment, and TV news bulletins are all concrete and readily understood.