Final answer:
During a recession, production is expected to decrease, and this reduction may lead to firms laying off workers or reducing wages to cut costs. The negative impact on production and employment lasts until firms are confident that the recession is over and demand has returned to a level that justifies full-scale operations.
Step-by-step explanation:
If we know the economy is falling into a recession, we would expect to see a decrease in production during the next few quarters. A recession is defined by a decrease in Real GDP (production) for 6 consecutive months. Consequently, during a recession, firms often experience a decline in demand for their products and services, which results in a slowdown in production. This slowdown can lead companies to lay off workers or to ask their employees to take pay cuts to reduce costs. Therefore, both production levels and employment are negatively affected in a recession.
With the onset of a recession, firms might initially hold on to their workers out of concern for the costs associated with rehiring and retraining later. However, if the recession persists, layoffs or firings may become inevitable, imposing significant financial and personal costs on workers, their families, and the community at large. Once the economy begins to recover, firms may remain cautious, leading them to prefer overtime work to hiring new employees until they are certain the recession is over.