Research suggests that consumers’ fear of the coronavirus had a far greater effect on economic activity than lockdown measures did.Fear, Not Government Shutdowns, Chilled the Economy
How the COVID-19 Recession Has Differed from the Great Recession
- December 15, 2020
- CBR - Economics
In just two weeks this past March, the COVID-19 pandemic pushed US employment off a cliff. New applications for jobless benefits surged 20 percent to 250,000 in the week ending March 14. Two weeks later, they topped 6 million, shattering the 1982 record of 1 million. By then, a recession was underway.
Researchers moved quickly to unravel what happened and seek out policy prescriptions, and University of Illinois’s Alexander W. Bartik, Chicago Booth’s Marianne Bertrand, University of Chicago PhD student Feng Lin, University of California at Berkeley’s Jesse Rothstein, and UC Berkeley PhD candidate Matthew Unrath have joined in this task. Their research indicates that the COVID-19 recession has been in some ways strikingly different from other recent downturns, including the Great Recession.
For their analysis of the job market from the start of the pandemic through early July, the researchers used two monthly government surveys of households and employers. Those snapshot sources proved unsuitable for tracking the rapidly unfolding jobs shock, so they tapped into almost-real-time data collected by Homebase and Kronos, two companies that provide time-clock services to employers. The researchers also evaluated data on physical mobility from SafeGraph, which tracks mobile phones, to measure the effects of state shutdown orders.
“Altogether, our findings show that this recession has differed sharply from other recent downturns in its speed, the types of firms and workers it affected, workers’ beliefs about its longevity and their likelihood of recall, as well as in the nature and size of the policy response,” the researchers write.
The lessons from this recession and response are ongoing, the researchers note.
For example, in the Great Recession, construction and manufacturing were the hardest hit. But the COVID-19 collapse disproportionately affected the leisure and hospitality industries, where employment fell by nearly 50 percent, the researchers find. Repair and maintenance services, laundry services, and services to private households had declines of 20 percent by mid-April, the data show.
In the COVID-19 downturn’s first two months, increases in joblessness and declines in employment “were roughly 50 percent larger than the cumulative changes over more than two years in the respective series in the Great Recession,” the researchers write. They point out that if job-market dropouts were taken into account, “the adjusted unemployment rate in April would have been well above 20 percent” rather than the 14 percent that the Labor Department reported.
People whose hours were tracked through Homebase said in surveys that they mostly expected their jobs to come back, but by the third week of June, there had been just a 50 percent job recovery. Larger companies and those that recorded employment growth in the year before the pandemic were less likely to close and were more likely to reopen after temporary shutdowns, the researchers find.
Age, race, and education factored into who lost jobs and who got them back. Those 65 or older or aged 16 to 25 were more likely to lose a job in April than those aged 26 to 37. People without high-school diplomas were more likely than college graduates to have stopped working in April. Black, Asian, Hispanic, single, and female workers lost jobs at higher rates than white, married, and male employees. By May and June, older, Black, Asian, single, and female workers who lost jobs were less likely to have gotten them back, the researchers find.
Government shutdown orders did little to exacerbate job losses, according to the study. The data did show significant declines in hours worked and consumer foot traffic following shelter-in-place orders, but these drops occurred even in states where there were no such orders. The researchers estimate that “government shutdown and reopen orders account for only a modest portion of the changes in labor markets and economic activity during the crisis.”
The federal government’s unprecedented fiscal interventions were fairly successful, the study suggests. The sweeping, $2 trillion Coronavirus Aid, Relief, and Economic Security Act provided $600 a week in addition to state unemployment benefits until the end of July. During the Great Recession, the Emergency Unemployment Compensation Act of 2008 simply extended jobless benefits by 13 weeks or more.
Many of those who lost jobs this year were low-wage workers, and as such, the supplemental CARES Act payments meant that some people made more on unemployment than at work. This led to suggestions from some lawmakers that the program encouraged people to stay home rather than look for work or go back to their jobs. If that were the case, the researchers write, employment in states where the wage-replacement rates were lowest would have bounced back the fastest. But the research suggests that states with the lowest replacement rates had larger worker-hour losses and slower recoveries.
The CARES Act also included funds for forgivable loans to small businesses under the Paycheck Protection Program. While these funds were quickly depleted, the researchers find that the money did help. The loss of worker hours was worse in states that got the fewest such funds, and those states recovered more slowly. More PPP money in a state was associated with fewer layoffs and faster rehiring.
The lessons from this recession and response are ongoing, the researchers note. About the recession, they write, “much of its story remains to be written.”
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