Early 1980s recession

The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited the recession relatively early, but high unemployment would continue to affect other OECD nations through to at least 1985. Long-term effects of the recession contributed to the Latin American debt crisis, the savings and loans crisis in the United States, and a general adoption of neoliberal economic policies throughout the 1980s and 1990s.

In the early 1980s, Canada experienced higher inflation, interest rates, and underemployment than the United States did. The Bank of Canada rate hit 21% in August 1981, and the inflation rate averaged more than 12%. The inflationary period made Canadians seek to protect themselves through investment in the housing market.

Some saw an advantage to high interest rates by speculation in real estate and other assets. The increase in transactions was financed through borrowing and ultimately caused debt levels to rise.

Canadian firms, preoccupied with prospective investment opportunities because of high inflation, no longer focused on innovation and productivity improvements. In addition, high inflation was partly responsible for larger government spending. The overall tax burden rose from 27% of income in 1951, to 34% in 1969, to 37% in 1988. From 1975 to 1992 national debt more than tripled to 8% of GDP. The resulting high interest rates caused more Canadian income to be paid out to foreign holders of Canadian public and private sector debt.

Canada changed from a country producing and exporting mainly primary products to one producing and exporting more manufactured goods. Jobs were lost to mechanization in industry. Moreover, globalization meant that Canadian firms had to downsize their workforce in order to stay efficient and compete internationally. In early 1980s, Canada’s unemployment rate peaked at 12%. It took almost four years for the number of full-time jobs to be restored. A slowdown in productivity also emerged during the recession. Real GDP declined by 5% between June 1981 and December 1982 and average output per worker slowed to 1%. The U.S. decision to switch to a floating exchange rate devalued the Canadian dollar. By 1979, the Canadian dollar was worth 85 cents U.S., which made U.S. imports more expensive. On the other hand, Canada’s major exports declined in price. Combined with high inflation, and interest rates, these high commodity prices reduced the standard of living.

...
Wikipedia