It has been assumed by many that the economy would return to normal quickly after the pandemic runs its course. A new study suggests that the downturn may be more prolonged and that many job losses will be permanent due to fundamental changes in the economy, however.
“We find three new hires for every 10 layoffs caused by the shock and estimate that 42% of recent layoffs will result in permanent job loss,” wrote Jose Maria Barrero, Nick Bloom and Steven Davis from the Becker Friedman Institute at the University of Chicago, quoted in Forbes.
The unemployment rate currently stands at 14.7 percent representing more than 20 million lost jobs. Many of the Americans who are still employed are being paid to stay home through the Paycheck Protection Program.
“It’s worse than it looks,” says Michael Reynolds, an investment strategist. “The labor force participation rate is even worse.”
The labor force participation rate fell to 60.2 percent in April, a level not seen since the early 1970s. The number is all the more startling because at that point there were far fewer two-income families.
It may get worse. If Congress does not extend the PPP and the economy does not recover, employees whose pay is currently being funded by the program may be laid off after it expires in September.
Even the lifting of stay-home restrictions may not be an immediate boon to the economy. Two new reports from the National Bureau of Economic Research suggest that states that did not have shelter-in-place orders fared just as poorly as those that did.
Rather, the economic destruction was wrought by people voting with their feet to not go into public places that they saw as a hot zone. My observations around Georgia, the first state to reopen, confirm that many, if not most, Georgia residents are not ready to return to business as usual. The same is undoubtedly true around the country, a new poll shows that 53 percent want shelter-in-place policies to remain for another month, and the world even though reopening activists are a vocal minority.
Without a vaccine or treatment, the global economy cannot return to normal without sparking a second wave of the pandemic. Rather than the “v-shaped” recovery initially hoped for by many, it now looks as though the recovery may follow a shape similar to the Nike “swoosh,” a steep downturn followed by a slow, shallow recovery.
Going forward, it is likely that there will be permanent changes to what we think of as normal. The online economy will grow while sectors that rely on close personal contact will decline. Many of the jobs in those sectors won’t come back.
The new economy will come with new jobs but the downside is that many low-income workers won’t be qualified for the new jobs. It’s also possible that the shift will mean a net loss of jobs for the foreseeable future.
The world was already undergoing a transition due to automation and the internet. That trend is going to be accelerated by the pandemic. It will get better but we are in for a rough few years.