As we begin to work our way through this crisis, a few things are becoming clear. One thing that is perfectly clear is that we have no idea how this crisis ends up.
At the beginning of the lockdown period in mid-March, there was the sentiment that we could hit a “pause” button on the economy, and hit “play” again once the “all clear” sounded, perhaps in 8 weeks or so.
Stimulus checks, grants, cheap loans and some employee arrangements would tide us through with little collateral damage. But the end game is beginning to look murkier, and not so clear cut. This could get ugly, again.
There’s been a lot of damage done to the labor force, and like the last washout in 2008, the jobs recovery may be every bit as tortuous this time as it was then.
The fall down the economic ladder is a lot quicker than the climb back up. Ratcheting up aggregate demand, and then hiring enough labor to satisfy it, is a time-consuming process. Even if some astounding hiring numbers are produced, by say, over 1 million workers with every monthly Department of Labor report, it would still take three years to get back to pre-COVID employment levels.
And while one million sounds great (as well as the sharp rise in comparative GDP that will surely follow) there’s still going to be plenty of pain out there for millions more as the process continues. And that presumes we don’t have any recurring flare-ups.
The cause for instantaneous mass layoffs and a slow revival of employment stem from one factor: fear.
When faced with an immediate cessation of demand, businesses are quick on the trigger to cut costs and survive. When back in growth mode, they will be cautious in adding headcount and payroll costs, lest they get ahead of themselves. They’re going to want to see some sustained demand that will support future hiring. We lived through this dynamic during the recovery from the last crisis.
I don’t see any reason for things to be any different this time around, no matter what the monthly job gains are. We’re in a far deeper hole this time around, and while there may be an initial snap-back effect, I wouldn’t count on that continuing at the same torrid pace.
Many companies, thankfully, have resorted to the use of furloughs for employees. That means pay is suspended but corporate health insurance is still kept in force, and often paid for.
Unemployment benefits are available while this lasts, so people aren’t completely washed out. At least for now.
Emergency UI lasts until July 31st. If things don’t bounce back, it needs to be extended. But even so, that furlough scheme can’t go on in perpetuity.
If things do recover, the employer has a trained workforce at the ready without the need to interview and try out green hires.
Operations can re-spool quickly. But again: the ride back up will not be a mirror image of the fall down, not everyone will get called back, and certainly not all at once. And that spells trouble for millions of breadwinners.
Labor slack on this scale is bad news for wages and salaries. But with over 36 million on unemployment, and currently rising, labor will not enjoy any leverage for some time to come. That will have a knock-on effect on employment as well. Less spending power becomes a self-fulfilling drag on both the economy at large as well as future labor demand.
So while we wait for some semblance of normalcy, we have some challenges ahead. I hope we can handle them.