“We are now in a coronavirus induced recession which means layoffs will surge around on the U.S.,” said Nicholas Bloom, an economics professor with Stanford University. “But, I think there are two positive points to bear in mind.”
“First, unlike previous recessions, say 2008-2009, this is likely to be far shorter… By late 2020 hopefully firms will start hiring again strongly. In contrast, in 2008-09, the recession dragged on for years. Second, the Fed and Congress have both been extremely aggressive in rolling out stimulus packages involving generous unemployment insurance. So this offers hope that government support will be far more generous than in prior years.”
Hopefully, he emphasized.
Americans will need that hope in the months to come.
The coronavirus quarantine has shut down businesses across the country and crashed America into a recession potentially steeper than any since 1929. At time of writing 42 states have closed some or all businesses deemed nonessential, typically focused on bars, entertainment and dine-in restaurants. Many responded with immediate layoffs.
In the last two weeks of March more than 4 million workers filed unemployment claims. Even this figure, already vastly higher than any other two-week drop in history, misses any newly unemployed workers who did not immediately file for benefits. Estimates by the St. Louis Federal Reserve suggest that by the second quarter of 2020 one in three adult Americans could be out of work, a 1,000% increase from February’s unemployment numbers.
For the millions of Americans who have already lost their jobs, and millions more in the months to come, the question is… what comes next? To understand what’s happening it’s important to understand that there will be bad news, but good news as well.
There Will Be A Lot Of Waiting
For many laid-off workers the hard truth is that there may not actually be anything they can do next. Nothing, except wait.
In a traditional recession, people can immediately go out and seek new employment. They have to fight uphill against a difficult hiring environment, with fewer jobs and reduced wages, but they have the chance to outcompete their peers. The quarantine recession represents something fundamentally new in that regard. Laid-off workers can’t get a new job because almost anywhere they could go and work has been temporarily closed.
The closest parallel in modern history would be Prohibition, when the government ordered every bar and brewery shut down at once. The employees' jobs became illegal, and like bartenders today, displaced bartenders and brewers in the 1920s couldn’t find comparable work elsewhere. Most responded by finding employment in new industries.
The same will happen to a certain degree now. Some out-of-work booksellers will move to Amazon (AMZN) - Get Report warehouses, and some bartenders will fill out an application for Whole Foods. For most people, however, there simply may not be much they can do in the near future. The jobs are gone because the employers have been closed, and won’t reappear until they reopen.
White Collar Workers Need to Prepare as Well
The first wave of layoffs has focused on retail and food service. The businesses most immediately shut down by the coronavirus quarantines have been the shops, bars, restaurants and venues at which people gather. This has focused job losses on sectors that many people tend to view as entry level and disposable, and caused many people to disregard concerns over the economy as the callow worries of GDP jobsworths or brunch-obsessed millennials.
As the recession continues, layoffs will expand. For the time being, many white collar workers have been sent to work from home, doing their jobs from laptops in the living room. As companies lose revenue, however, the layoffs will expand rapidly. Already supply chain vendors have let go of workers, while major companies have begun to furlough executives in response to the quarantine. There is no reason to believe that any particular job will be safe during the coming recession.
This Will Be Particularly Bad for Young People
“In a recession the first thing we see employers do is stop employing,” said Nicholas Wyman, CEO of the Institute for Workplace Skills and Innovation. “Young people are particularly vulnerable. We see that right now with staff freezes and layoffs and so on.”
“Of course, when the recession flattens out or things start to turn up a bit, the first people employers look for are older workers with experience who can slot-in quickly and are often cheaper than they were before the recession,” he said. “So again, limited opportunities for young people.”
The job loss from a recession always hits young workers the hardest. As the Brookings Institute found, workers age 20 to 30 tend to lose about 17% of their long-term income from an economic collapse, with people under the age of 40 about twice as likely to lose their jobs as everyone else. The coronavirus quarantine will exacerbate these trends, and its initial weeks have simply deleted retail and service industry jobs (average age 29 years old).
Young people who have been laid off should not count on simply picking up where they left off. Historically, they have best come out of recessions by developing new skills or additional education, helping them to return to the workforce in a stronger bargaining position than they left.
The Recession May Be Severe, but Short
For laid-off workers, perhaps the most important thing to remember is that, for all the comparisons, this is not the Great Recession. Nor is it the Great Depression. The world has never seen anything like the current experiment, and economists simply don’t know if governments can stop then start an economy again like a car engine.
However, there is reason to hope that this will end well, and in the relatively near future. This is the “V-shaped recovery” that economists have referenced. It’s the idea that, once the government allows businesses to get back to normal, they will come back to life quickly to meet a sea of pent-up consumer demand.
“My own thinking is becoming increasingly depressed on this as time goes on,” cautioned Bloom, “but the glimmer of hope is that because the recession has been induced by social distancing, in three months or whatever when this has passed… life can go back to normal. I think that if a vaccine came out reasonably soon, say in the fall, then life could go on pretty fast.”
With a recent stimulus bill designed to help businesses and individuals through the worst of the quarantine, Bloom said, this outcome has become significantly more likely. Congress may need to do more, he said. A stimulus bill can help goose an economy out of an ordinary recession, when money can reopen businesses and create jobs. During a mandated shutdown, individuals and businesses will need something to replace their lost income until the market gets back to normal. This is particularly true given that approximately half of all Americans have no significant resources to fall back on during times of extended unemployment.
The key, Bloom emphasized, is that the public must feel safe. Any substantial recovery will need “some medical solution to the fear.” However if that can happen relatively soon, and if the government can ensure that the business community survives to resume operations, then Americans might expect to go back to work in the fairly near future.