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The 2008 Financial Crisis

The Great Recession and Pay

The recession and what happened to pay

Seven steps, about ten minutes, and a question at each. You need no economics and no preparation, only a willingness to guess before you are told.

Step 1 of 7

The question

A country in a recession chooses between losing jobs and losing pay. No minister makes that choice, and it gets made anyway.

The banks were rescued and then lending shrank anyway. British output fell 6 per cent and was slow to come back, and yet unemployment here stopped well short of America's.

Why it matters and what it covers

Seven steps on where the difference went, and on the one thing that never returned.

What this module covers

  • Lending shrinking after the rescues rather than before
  • Whether that was the banks or their customers
  • How long America's recession ran
  • How long Britain took to get back
  • The jobs that did not go
  • What was traded for what
  • Output per hour, and why it never got back on its line

Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.

Step 1 · 2008 to 2010

The lending stops

Bank lending to British households and companies grew by 3.8 per cent across 2008, averaged over the year, while the rescues were going on.

Money out on loan is a stock, like water in a tank: new lending runs in and what people pay back runs out. The stock shrinks only when they pay back faster than anyone borrows.

The Bank of England's own trend for that stock is growth of 5.8 per cent a year.

Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.

Lending grew 3.8 per cent across 2008. What did it do in 2009?

Step 2 · 2009

Lending less, or borrowing less

The Bank of England put a figure on how much of the 2009 fall was banks choosing to lend less rather than customers asking for less.

A percentage point is a step on a percentage scale: growth of 5 per cent falling to 3 per cent is a drop of two points. The Bank counts what moved lending growth in points of that kind.

Banks price a loan as an extra on top of Bank Rate, the the Bank of England sets, and how big that extra is says which of the two was happening.

The Bank's trend for lending growth is the same 5.8 a year that step one gave, and lending in 2009 came in 0.7 per cent below where it started.

interest rate
The price of borrowing money, given as a percentage of the amount borrowed each year. The Bank of England sets one rate that the rest are priced from, so when it moves, mortgages, loans and savings rates usually move with it.

How many percentage points did the Bank of England reckon came off lending growth in 2009 because the banks were lending less?

For scaleThe same estimate for 2008, the year the banks were being rescued, is 1.4 percentage points.

Step 3 · December 2007 to June 2009

America's recession

The American that followed the crisis ran from December 2007 to June 2009, on the dating of a committee at the National Bureau of Economic Research.

The committee waits until the figures have settled before it decides, so a recession is normally declared over long after it is.

Before this one, the longest American recessions since the second world war had each run sixteen months, in 1973 to 1975 and in 1981 to 1982.

Dating one takes time: this recession ended in June 2009 and was not declared over until September 2010, fifteen months later.

recession
A period in which the economy shrinks rather than grows, usually counted as two or more three-month periods of falling output in a row. Firms sell less, so they employ fewer people, so households spend less again.

How many months did the American recession of 2007 to 2009 run?

For scaleThe two longest before it had run sixteen months each.

Step 4 of 7
What happened next Next module Next: The Bailout Exits and Bank ReformMay 2017 to 30 May 2025. Lloyds sold, NatWest sold seventeen years after the rescue, the Icelandic money recovered, and what the whole thing cost in the end.

Module 6 of 7 in The 2008 Financial Crisis

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🇬🇧United Kingdom: the numbers today→ 🎯Guess the Value, which trains the estimating these questions asked of you→

Where every figure came from

[1] How much of the fall in lending was the banks lending less, on the Bank of England's own count: Bank of England, Understanding the weakness of bank lending, Quarterly Bulletin 2010 Q4.
[2] The argument on the other side: International Monetary Fund, United Kingdom: 2010 Article IV Consultation, Staff Report, 21 October 2010.
[3] How long the American recession ran, and how that compares: National Bureau of Economic Research, Business Cycle Dating Committee announcement, 20 September 2010.
[4] How high American unemployment went: US Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, series LNS14000000.
[5] How far British output fell and how long it took to get back: Office for National Statistics, series ABMI, Gross Domestic Product: chained volume measure.
[6] How high British unemployment went: Office for National Statistics, series MGSX, unemployment rate, aged 16 and over, seasonally adjusted.
[7] The trade, measured against the two recessions before it: Bank of England, Changes in output, employment and wages during recessions in the United Kingdom, Quarterly Bulletin 2010 Q1.
[8] What never came back: Bank of England, The UK productivity puzzle, Quarterly Bulletin 2014 Q2.
[9] The argument that the banks are not the explanation: National Institute of Economic and Social Research, on the productivity puzzle, May 2014.

Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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