The current unemployment rate is at 13%, far above the previous pre-Coronavirus estimates of 4.4%. It has not been at this level since 1982, and has destroyed the record-breaking low numbers achieved previously.
It’s estimated that the unemployment rate could break 30% by the time Coronavirus has reached its peak. But in situations such as these, what does an unemployment rate really mean? Can the economy really go back to normal in the future? Here are some things to consider…
Unemployment Rate as a Metric for Economic Strength
A high unemployment rate means that workers aren’t working, and that means they aren’t making or spending money. The higher the unemployment rate goes, the more dire the situation becomes. During the Great Depression, unemployment was at 24.9%. This was a catastrophic time for the United States. It’s expected Coronavirus could blast these numbers out of the water. But what does that really mean when the economy is essentially “on pause”?
Not All Jobs Are Coming Back
Most of the economic stimulus is targeted towards ensuring that jobs are available. But with so many companies failing, not all jobs are going to be coming back. As small restaurants collapse, restaurant workers will not be able to find jobs. Indeed, the only jobs that seem certain or viable right now appear to be those in grocery stores.
With many companies struggling, there isn’t going to be much hiring, and those who are on unemployment may find themselves looking for work for four months, six months, or more. And this may not be in the areas that one expects: high-level employees like accountants and lawyers may find themselves out of work for longer than the average retail worker.
The Pandemic Unemployment Assistance Program
PUA is expected to last four months to give injections to those who need it. At $600 a week (plus traditional benefits), it may be giving those who are unemployed anywhere from $2,400 to closer to $4,000 a month. That will be enough to cover wages for many employees, but not higher wage earners who have more disposable income. And that could mean that economic spending is going to slow.
What Does a Country with 30% Unemployment Look Like?
If 30% of the country is unemployed and on unemployment, there becomes a question of production. Non-essential services are likely to collapse. There will be fewer restaurants and retail outlets as a whole. There will be fewer entertainment venues open. And there will be less spending overall.
But it also means that a certain subset of the population will not only have nothing to do, but will also have as much money or more money coming in than they are used to. These consumers may still prop up some industries.
Looking Past the Pandemic
From the Great Depression, it’s likely that the economy is going to take three or four years to recover in full from the effects of unemployment. Though the Coronavirus pandemic is temporary, many small businesses are going to fail. These businesses are going to fail with debt, and struggling business owners are not going to be able to relaunch their businesses quickly.
Since small businesses account for 44% of the economic strength of the country, and two-thirds of the jobs in the United States, it will take some time for businesses to reestablish themselves and begin hiring again. But there is a light at the end of the tunnel, and this economic healing can begin once the Coronavirus pandemic is over.
