In the two months since the U.S government instituted sweeping lockdowns to contain the spread of the coronavirus, the economy has taken a gut punch like never before.
Compared to the Great Recession, which developed gradually, this coronavirus-induced recession occurred practically overnight, erasing the number of jobs created since 2009 in only four weeks.
As the United States and the rest of the world continues to battle the COVID-19 pandemic and balance the desperate needs of the economy with essential healthy and safety concerns, here’s what you should know about the current recession.
The COVID-19 Recession is Different From Others
Recessions are frightening, but they’re also a normal part of our economic cycle. In fact, 11 recessions occurred between 1945 and 2009 alone. A “normal” recession occurs after a period of intense growth as the economy “corrects” itself by contracting.
Every recession creates a domino effect: companies making less revenue look to save money by limiting new hiring initiatives, reducing wages, and laying off non-essential employees. In response, consumers spend less in order to save money, contributing to a cyclical effect that’s difficult to stop.
However, our country’s current recession didn’t occur as a direct result of ongoing economic growth. It occurred in the blink of an eye due to the forced shutdowns amid the COVID-19 outbreak. Non-essential companies had no choice but to shut down and lay off employees, resulting in a staggering 22 million new unemployment claims in just five weeks.
As International Monetary Fund’s chief economist Gita Gophinath wrote, “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”
Older Americans Nearing Retirement Are Especially Vulnerable
The Great Recession of 2009-2009 forced older Americans back to the workplace after retirement, but experts believe this trend will become even more pronounced due to the coronavirus pandemic.
According to labor economist Teresa Ghilarducci, the economic impacts of COVID-19 will force 3.1 million older works into poverty in their retirement. As she explained, the unemployment rate is “going up among older workers faster than any other group, except for the very young. They probably won’t get back into the labor force, or it’ll take them a long time to get another job.”
This may prove detrimental to their financial security, Ghilarducci believes. “That means they’ll draw down on their retirement savings, they may go into debt and they’ll also apply for Social Security earlier, forgoing increased benefits. As a result, people who are middle-class workers now will be poor or near-poor retirees for the rest of their lives.”
Advanced and Emerging Economies Are Struggling
For the first time since the Great Depression, advanced economies like the U.S and emerging and developing economies face a perilous recession.
According to the International Monetary Fund, income per capita is expected to decline for over 170 countries, with a partial recovery not anticipated until 2021. Never before has a recession impacted so many countries at once, all due to the same external force.
Recovery is Uncertain
Due to the direct link between the global COVID-19 pandemic and America’s dramatic economic downturn, recovery from this recession will be inexorably tied to our country’s disease management. Everything from testing and tracing to hospital capacity and vaccine development will influence the economy’s reopening and thus the eventual end to this recession.