6 This supply-side damage has typically appeared both in the labor market and in the capital stock. 7 Long spells of unemployment cause skills to atrophy and make it more difficult for workers to find new jobs, raising the natural rate of unemployment for those who do remain in the labor force and causing others to throw in the towel and drop out.
Extended periods of weak demand appear to cause companies to invest less in plant and technology, which slows the growth of the productivity of the workforce. The number of new business formations declines sharply, perhaps because of reduced credit availability, which may depress hiring, productivity, business innovation, and hence trend output.