It has now been over a year since the Covid-19 pandemic placed its grip over much of the globe. Aside from the toll on human life, the pandemic also catalyzed an economic black-swan event which has caused equal destruction to the economic vitality of several developed nations in the Western world. Economic output and jobs hemorrhaged as a result.
In the United States, government responded with a series of economic stimulus bills to inject capital into a market being destroyed by restrictions and reduced capacities. Now, economists and experts, such as Gail Fosler of the Gail Fosler Group, are forecasting the mid to long term effects on both the economy and the labor market from the pandemic. For Fosler, economic stimulus may have succeeded in stabilizing the deteriorating economic outlook in the United States but will not do enough alone to bring back millions of jobs lost.
When the pandemic first hit, the United States Congress passed the CARES Act to bolster unemployment benefits to those suddenly out of work due to the virus, and in theory, keep businesses who were vulnerable afloat. By the end of 2020, another bill was passed as the CARES money ran dry, and for Fosler it couldn’t have come sooner. “The bill will likely total $900 billion to $1 trillion…Make no mistake about it, this legislation is badly needed and long overdue.”
One indication that government stimulus spending helped stabilize the economy in Fosler’s analysis is the recovery of disposable market income. “Disposable personal market income reached a pre-pandemic high in February 2020 and likely exceeded that high in November based on GFG estimates.” But once the initial shocks and the more Draconian lockdown restrictions eased, it is evident that sheer economic growth has not equaled the recovery of the labor market.
Fosler notes, “The media ties the slowdown in hours and employment to the rise in COVID-19 cases. Our view is less sanguine. From our perspective, the slowdown in hours and employment is a natural extension of stabilization response to the Q2 2020 pandemic economic shock.”
Unemployment, not GDP or wage growth, is still running high and whether the labor market recovers to pre-pandemic levels will determine if we can achieve the previous economic strength the country had prior to Covid-19. And despite trillions in stimulus, the labor market is struggling. “According to the November employment report, 11 million Americans are still unemployed, and the number participating in the workforce has dropped by more than five million since the start of the pandemic.”
The economic milestones reached prior to the pandemic, including record low unemployment and increased labor participation from the public, were both shattered as the virus ground the country to a halt. “Beginning in mid-March, unemployment insurance claims skyrocketed to over 20 million, then rose to over 30 million — 20 percent of the total number of employed before the pandemic began.”
While these numbers have dropped considerably, Fosler anticipates that upward of five million may still be in need of these unemployment benefits into 2021 without a labor market recovery. “Should these potential workers drop out of the workforce entirely, a decline of this magnitude would be the largest sustained decline in the U.S. civilian labor force in the post–World War II period.”
Ultimately, in Fosler’s analysis, government stimulus and the nation’s response to the virus stemmed the bleeding, saving the economy from an absolute free fall, but money will not save it alone.
“What is needed is a re-visioning of the economy such that new sectors are created; existing sectors, especially social services like health care, are expanded; and modern technology platforms and low-carbon energy sources are affordable and available for all. This task is much more complicated than reopening hospitality and leisure activities.”
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