The coronavirus pandemic is evolving from a health crisis to include a financial one, says Diane Lim, senior advisor to the Penn Wharton Budget Model, and the two are different because the health emergency is not affecting everyone in the economy the same way.
“A lot of us are still working, because we can work from home,” says Lim. “A lot of businesses are still operating at full speed, because they don’t rely on face-to-face contact for their production. But it is the businesses that rely on human contact, anything involving large groups, those are the sectors of businesses and the workers that have been told they cannot do their job right now.”
Lim explains some parts of the economy are more affected than others. Among the hardest hit sectors is the service industry, particularly accommodation and food.
“People are still working their full-time jobs and trying to do their jobs the best they can while staying at home,” she says. “So, it’s possible for some to do this. It isn’t possible for those who are, for example, working in a restaurant serving customers. I think that’s the transmission from health to economic. It has been through particular parts of the economy, particular industries, and particular kinds of workers.”
A record number of American workers, 3.28 million, filed unemployment claims in the week ending March 21, according to U.S. Department of Labor data released Thursday. That’s an increase of 3 million from the previous week.
Nearly every state cited COVID-19 as the reason for skyrocketing claims. Health care and social assistance, arts, entertainment and recreation, transportation, and warehousing or manufacturing industries were also heavily impacted, according to the Department of Labor.
Lim expects the numbers to increase in the coming weeks.
“Not everyone has started filing for unemployment,” she says. “A lot workers had their hours cut but are not yet unemployed. Those workers are not going to show up on the unemployment data.”
The numbers are unprecedented.
“No economist has ever seen this in our lifetime in terms of the severity of unemployment,” says Lim.
According to Lim, the coronavirus pandemic can lead to changes about how people think about the economy in the future.
“None of us are used to thinking about the connection between what’s going on with public health and how crucial public health is to the continued functioning of our economy,” she says.
Lim predicts a light at the end of the tunnel. She says the recovery will likely be quicker than most expect, because the nature of the coronavirus crisis is putting the whole economy on pause rather than destroying it.
“Everyone is ready to come back to work,” she says. “They are not disconnecting from their employers completely. People are not changing occupations. The businesses are not switching gears and closing up for good.”
She thinks the recession will be deeper in terms of the effect on unemployment rate.
“The numbers will go much higher than during the Great Recession, but the recovery from that should be faster,” says Lim. “In this case, as soon as the health crisis is over or at a low level, where the government tells people they can resume normal activity, then we will quickly see a rise in people going back to work and a reduction in the unemployment rate.”