It is becoming increasingly clear that the economic fallout from the coronavirus lockdowns may be worse than the virus itself.
According to a new paper from the National Bureau of Economic Research, 42% of coronavirus-related layoffs will become permanent.
The prospect is especially alarming because officials, and the workers themselves, expected the layoffs to be only temporary. In fact, nearly 90% of the more than 20 million Americans who were laid off in April expected their job loss to be only temporary, according to the Bureau of Labor Statistics.
“Broadly speaking, we anticipate permanent job losses in three buckets: jobs lost due to COVID-induced demand shifts, jobs formerly at marginal firms that don’t survive the pandemic and lockdown, and jobs lost due to the intra-industry reallocation triggered by the pandemic and post-pandemic concerns about the transmission of infectious diseases,” the paper explains.
Unfortunately, the paper only addresses current job losses, not future ones. That means the economic fallout could be even greater than what the paper found.
On the positive side, the paper states that policy reforms that coalesce to the economic changes induced by the pandemic could aid in economic recovery.
“There are potentially large benefits of policies and policy reforms that facilitate a speedy reallocation of jobs, workers, and capital to newly productive uses in the wake of the pandemic,” the paper explains.
On the other hand, the paper states, “Policies that deter or slow factor reallocation are likely to further lengthen the lag of creation behind destruction, slowing the overall recovery from the pandemic, the lockdown, and the pandemic-induced reallocation shock.”
The grim news comes as the U.S. unemployment rate skyrocketed to nearly 15% after more than 30 million Americans lost their jobs due to the stagnant economy caused by the pandemic.
And unfortunately, top economic advisers to President Donald Trump think unemployment could peak north of 20%, levels not seen since the Great Depression nearly one century ago.