THE CORONAVIRUS RECESSION IN THE U.S.: IS THERE A LONG-RUN FOOTPRINT?

1. Introduction

Chinese authorities identified a cluster of atypical pneumonia cases in Wuhan, Hubei province, on December 31, 2019. They determined the outbreak was caused by a novel coronavirus on January 9, 2020 and reported the first death from COVID-19 two days later. The virus spread to many other countries, including the United States, by the end of January 2020 and at that time the World Health Organization declared the COVID-19 outbreak a global health emergency. However, coronavirus first exploded onto the American consciousness a month later on February 27th when a long-term care facility in Seattle Washington reported that two-thirds of the facility’s residents, and dozens of staff members, tested positive for the coronavirus. Over the next 2 weeks as attention focused in on this facility, 19 of those who tested positive died, signally the effective beginning of the pandemic in the U.S.

In an effort to control the spread of COVID-19, curfews and quarantines—for those infected or in contact with persons carrying the virus—along with stay-at-home (i.e., shelter-in-place) orders for individuals—were put in place in a third of U.S. states by the end of March 2020. At the same time business shutdowns, often referred to as lockdowns, were enacted—and half of the states had ordained such programs by the end of the first week of April.

The U.S. economy experienced a massive contraction beginning in March of 2020, and it was even more pronounced by the end of April. Relative to Gross National Product (GNP) in February, GNP fell by 5.5% in March and 15.5% by the end of April (St. Louis FED, 2021). This was the result of both a decline in production and a fall-off in expenditures—contractions in Aggregate Supply as well as Aggregate Demand. Production fell due to a decline in employment associated with business closures, since only 31% of workers transitioned to working at home (Brynjolfsson et al., 2020).¹ In addition, output was undermined by a shortage of inputs caused by disruptions in the supply chain both domestically and internationally as trading partners also wrestled with the expanding pandemic.

Households cut spending on consumption and firms reduced investment—plant and equipment expenditures—in March and April as the pandemic spread in the U.S. Moreover, at the same time, U.S. exports fell since U.S. trading partners experienced rapid declines in economic activity and hence income.

In hopes of heading off a massive recession, the U.S. government passed the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act), on March 27th 2020. The CARES Act was an enormous—$2 trillion—fiscal stimulus program.² The U.S. Central Bank—the Federal Reserve—accommodated the CARES Act with an expansionary monetary policy to prevent a credit crunch from arising since the fiscal stimulus was deficit financed, and to encourage spending on big ticket items by households and investment activity by firms. The fiscal and monetary policy interventions stopped the slide in aggregate expenditures, and within a few months national spending was close to its level prior to the pandemic.

In June, real GNP and employment were, respectively, 94% and 89% of their pre-pandemic levels. In addition, the U.S. stock market recovered 73% of the value it lost in March and April of 2020 by the end of May—and 95% by the 22nd of July. Although it is tempting to claim the Corona-Recession in the U.S. was V-shaped—a rapid decline followed by a quick, if incomplete, recovery—improvements have been much slower for less formally educated Americans, suggesting a “two-track recovery” occurred. The debate over the shape of the recovery focused attention on the short-run or near term. There has been little, if any, discussion in the U.S. on the long-run consequences of the Corona-Recession.

This purpose of this paper is to advance an examination of the arguably more permanent—longer-run—impact of the Corona-Recession. I claim that the Coronavirus recession will have a lasting impact on the U.S. economy, and society, in two ways. First, it has accelerated some emerging economic trends that will have a profound effect on work, society, and well-being in the U.S. well into the future including—expansion of remote work, and more rapid adoption of emerging Fourth Industrial Revolution technologies. This later development leads to further automation fostering technological unemployment and changes in the distribution of work and wages. Second, the pandemic-fueled downturn has fostered a new pathway—loneliness and social isolation—that broadens, to younger work force participants, and exacerbates the emotional health concern that is part of all recessions. This development is also likely to have an enduring footprint on economic and social life.³

The remainder of this paper is organized as follows. Section 2 presents a detailed description of how the pandemic led to a large economic contraction in the spring of 2020. The policy response, both fiscal and monetary, launched shortly after the onset of the pandemic contraction is described in Sec. 3. Section 4 presents evidence evaluating the impact of the policy response, and explains why this response was so effective in rapidly limiting the extent of the contraction in terms of real GDP. In Sec. 5, I identify and discuss—the unique and enduring effects of the pandemic—on economic and social life in the United States. In Sec. 6, I offer concluding remarks.

2. The Coronavirus Recession: A Perfect Storm

2.1. Onset of the coronavirus recession

Business Investment—spending on new plant and equipment—is the most volatile element of aggregate expenditures. Thus, it is changes in investment that typically initiate an alteration in aggregate demand and usher in expansions or contractions of the overall economy.

Keynes argued that the decision to invest rested on the calculation of profit expectations (Keynes, 1936) along with an assessment of the level of confidence the decision maker held in that assessment—which he referred to as weight of the argument (Keynes, 1930).⁴ In his view weight depended on the quality of the information used to formulate the prediction of future profits, which in turn was impacted by uncertainty about the future state of affairs. If profit expectations, adjusted for weight, were larger than the costs of implementing a project then investment takes place.⁵

The University of Michigan’s Survey of Consumer Sentiments (Michigan, 2020) was designed to provide retailers and investors with an index of consumer attitudes about the future of the U.S. economy. It is common to assume that perceptions of the future held by business leaders are swayed by views of the future held by consumers. Thus, the Survey of Consumer Sentiments can be thought of as a proxy for profit expectations held by firms, and hence is often used by researchers to predict investment (Anderson and Goldsmith, 1997). The index fell 18.5% over the four-month period following passage of the CARES Act signally a dour view of the future on the part of U.S. households, and presumably, firms. Not surprisingly, between passage of the CARES ACT on March 27, 2020 and the end of July 2020 Gross Private Domestic Investment in the U.S. fell by 15% (St. Louis FED, 2020).

Consumer spending is the largest portion of aggregate expenditures in the U.S.—hovering around 65% of total expenditures for the past 4 decades—and displays little volatility (St. Louis FED, 2020). Nevertheless, shocks to consumer spending occur occasionally and the coronavirus pandemic was such an event. Relative to January and February of 2020, consumer spending fell by 7% in March and by another 11% in April (Richter, 2021). This can be explained, in part, by the large decline in employment, noted earlier, since consumption depends primarily on income. However, this was likely accompanied by a substantive Pigou Effect (Pigou, 1943)—change in spending due to an alteration in wealth holdings—since the stock market tumbled dramatically and lost almost a third of its value between the end of February 2020—when the corona pandemic became front page news in the U.S.—until the end of March when the CARES Act was enacted.

U.S. exports held steady as 12% to 13% of aggregate spending in the U.S. for the past decade (U.S—CB, 2020). However, the pandemic has been a global event undermining economic activity throughout the world, and hence international trade (UN, 2020, p. 14). The decline in GNP experience by U.S. trading partners in March and April of 2020 had a rapid and enormous adverse impact on U.S. exports. U.S. exports fell by 30% in April of 2020 relative to their pre-pandemic level in January–February of 2020. This certainly contributed to the 15.5% decline in U.S. GNP over the two-month period from late February to late April of 2020.

Thus, the rapid and pronounced decline in economic activity in the U.S. that quickly followed the arrival of coronavirus in the U.S. was the result of a decline in both aggregate supply and aggregate demand. This presented a formidable challenge to U.S. policy makers since hope of finding a therapeutic solution to the illness generated by the virus was quickly dashed by the scientific community, and development of an effective vaccine seemed—in the spring of 2020—far into the future. Nevertheless, the economic turnaround that took place over the next few months was as historic as the quick decline. In the next section we describe the shape of the policy response.

3. Limiting the Coronavirus Recession Through Public Policy

3.1. Fiscal response to the pandemic

Fiscal and monetary authorities in the U.S. acted swiftly and forcefully beginning in late March of 2020 to substantially offset the rapid—and deep—decline experienced in aggregate economic activity during March and April. Indeed, in May and June, the economy reclaimed much of its deterioration. In April 2020, GNP in the U.S. was 15.5% below its pre-pandemic level, but was only 6.3% below that mark in June and 4.5% short of its level in February of 2020 by the end of July. What led the policy intervention to be so effective in the face of such a large initial decline in economic activity and great uncertainty?

The design of the fiscal and monetary interventions, and their magnitude, each contributed to and sharped the turnaround. The three most important components of the CARES Act—the fiscal intervention—for household welfare were

Importantly, the fiscal stimulus package was targeted heavily toward low-income households. These families subsequently exhibited high tendencies to spend from the additional income provided by the intervention—enhancing the impact of the dollars provided to households by the government through the CARES Act (Kaplan et al., 2020).

The Economic Impact Payments (EIP)—commonly referred to as “stimulus checks” provided $1,200 to: single unmarried adults with income less than $75,000, and single parent household heads with income below $112,500. Married couples with combined income less than $150,000 received a $2,400 stimulus check.⁶EIP recipients were also eligible to receive an additional $500 for each qualifying child under the age of 17.

To help sustain consumer demand by people who lost their job during an economic downturn the U.S. created an unemployment insurance (UI) program in 1935. Unemployment insurance programs are run as federal-state partnerships financed through state and federal payroll taxes levied on employers. The basic program in most states provides up to 26 weeks of benefits to unemployed workers, and replaces about half of their recent wages while working—with a benefit ceiling—and states are free to vary aspects of the program. The CARES Act also targeted additional aid to the unemployed, by extending the conventional unemployment insurance program in each state through the enactment of three programs.

First, the Pandemic Unemployment Compensation (PUC) program added a $600 weekly supplement—from the Federal government—to state unemployment benefits until the end of July 2020. Second, through the Pandemic Unemployment Assistance (PUA) program the CARES Act extended eligibility for benefits to groups not covered by the traditional UI program, such as the self-employed, part-time workers, and those with too short a work history to qualify for state level UI assistance. Finally, it extended by 13 weeks the duration of UI benefits for a regular claimant under the Pandemic Emergency Unemployment Compensation (PEUC) program.

The Economic Impact Payments and the unemployment insurance expansion programs contained in the CARES Act were transfer programs (i.e., no services are provided by the benefit recipient) aimed at promoting household consumption spending. In addition, the hope was that if successful—the business outlook for the future would improve—stopping the fall in, and potentially expanding, investment spending by firms.

The Paycheck Protection Program, the third signature element of the CARES Act targeted the decline in production—aggregate supply—brought about by the drop in employment. Of course, if successful it would also shore up consumer spending, and thus also contribute to the restoration of aggregate demand.

The Paycheck Protection Program (PPP) provides small businesses—those with less than 500 employees—with loans to keep employees with the firm and to help firms recall those laid off as a result of the pandemic. Eligible firms can apply for a loan to cover up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities used by a business. The Small Business Administration was charged with implanting the program and it had the authority to lend up to $659 billion. More than 5 million PPP loans were approved, accounting for $525 billion, during the application period which ran from April 3 until August 8, 2020 (SBA, 2020).

An attractive, and incentivizing, feature of the PPP is that borrowers are eligible for loan forgiveness, which essentially turns their loan into a grant—which does not need to be paid back—if at least 60% of the loan is spent on payroll costs within 24 weeks of receiving the funds.⁷

The CARES Act also contained eviction moratoriums, and mortgage and student loan forbearance programs, to prevent further hardships associated with the coronavirus recession. The CARES Act established a 120-day eviction moratorium for evictions based on non-payment of rent for covered properties—homes purchased with a federally backed mortgage or a mortgage acquired through certain federal assistance programs. Moreover, landlords are restricted from assessing and collecting fees, penalties, or other late charges related to any non-payment of rent that occurred during the 120-day federal moratorium period. In addition, if the landlord of a covered property wants to evict a tenant for non-payment of rent after the expiration of the federal eviction moratorium they must serve the tenant with a 30-days’ notice to vacate—providing them with an additional grace period.

When the U.S. economy started to substantively contract due to the coronavirus pandemic and the shuttering of business firms in March of 2020, many families began to experience a range of insecurities including—housing, food, work, and transportation. The federal government was particularly concerned about families with young household heads who may have debt obligations associated with their education. At the time there was $1.5 trillion in federal student loan debt linked to 42.8 million borrowers. The fear was that these families would have to choose between paying off student debt each month and other demands on their limited financial resources such as food and health care leading to additional stresses on these families. Therefore, under the CARES Act, no payments are required on student loans provided by the federal government from March 13 until September 30, 2020, and during this period the interest rate on these loans was set at 0%.

3.2. Monetary response to the pandemic

The swift decline in the economy due to the pandemic, and the depth of the contraction, left U.S. monetary authorities worried that defaults might damage the capacity of the financial system to provide loanable funds leading to a credit crunch. In addition, it became clear to leaders in the Federal Reserve System in early March of 2020 that the large fiscal policy response being planned—the Cares Act—which was implemented a few weeks later, would be funded by borrowing. Although the interest rate was low at the outset of the coronavirus recession there is always fear in some quarters that deficit spending leads to higher interest rates that crowd out business investment and borrowing by consumers for big ticket items which would moderate the impact on aggregate demand of the fiscal intervention. Moreover, the FED was also fearful that dour economic expectations would put a chill on borrowing and spending going forward.

The FED planned, and then began to implement, a broad and extensive monetary expansion in March of 2020 in response to this array of concerns. The goal was to ensure both low interest rates and sufficient liquidity once its fears started to materialize with the appearance of risk premiums on corporate bonds and illiquidity in the U.S. Treasuries market as March advanced.

The next section addresses the question of how effective was the CARES Act—the initial fiscal policy response—in combination with the monetary policy actions taken at the same time, to counter the coronavirus recession?

4. Assessing the Efficacy of the Fiscal and Monetary Responses to the Corona-Recession

4.1. Evaluating the CARES Act

Fiscal authorities hoped that households would spend the economic stimulus checks—Economic Impact Payments (EIP)—they received through the CARES Act. In addition, they planned to distribute the checks soon after passage of the CARES Act, to slow the contraction before it built up too much energy.

In line with their wishes, distribution of the Economic Impact Payments started flowing to eligible households the second week of April, with the early checks going to those with the lowest adjusted gross income. The Internal Revenue Service sent these stimulus checks to nearly 90 million individuals by April 17, and to an additional 63 million individuals over the next 5 weeks. As of June 3rd, 159 million payments had been processed.

Coibion et al. (2020) evaluated how households allocated their EIP payments to see if a substantial share went toward consumption—the aim of this policy initiative. They analyzed data from the Pre-Crisis (January 2020) and Initial Post Pandemic (April 2020) waves of the Kilts Nielsen Consumer Panel (KNCP)—a large survey of U.S. households. They report that amongst household receiving an EIP, 40% of the funds received were allocated by recipients to consumption spending. Another 30% of EIP payments was used to pay down debt. This put funds directly in the hands of financial intermediaries who could turn around and make additional loans. These loans helped prevent businesses from becoming insolvent, and household from fostering financial sector uncertainty by missing loan payments. Thus, about 30% of the average direct stimulus check was saved, helping to fortify the economy against a credit crunch. Hence more than half of the fiscal stimulus funds helped strengthen the financial sector by preventing a credit crunch and even more negative perception of the future.

It is interesting to note that 40% of EIP recipients spent the entire stimulus check (i.e., had a marginal propensity to consume of 1), and 30% displayed a mixture of spending and saving—with lower-income households spending a significantly larger share than high income households. Critics of cash grants as the center-piece of a fiscal intervention worried that the income provides an incentive to work less—consume leisure. However, Coibion et al. (2020) found that 90% of employed workers who received a stimulus check reported that the transfer did not reduce their hours worked.

The impact of the federal adjustment in unemployment insurance benefits contained in the CARES Act—on promoting economic recovery soon after the steep coronavirus economic contraction set in—can hardly be understated. Typically, since only a fraction—about 50%—of lost earnings due to unemployment are replaced by unemployment insurance benefits, expenditures by job losers decline by 7%. However, the $600 weekly Federal unemployment insurance (UI) supplement to state unemployment benefits—stipulated in the CARES Act—is estimated (Farrell et al., 2020) to have replaced lost earnings by more than 100% for two-thirds of UI eligible unemployed workers. As a result, although spending by the average household in the U.S. declined in lock step with onset of the pandemic contraction—unemployed households actually increased their spending beyond pre-unemployment levels once they began receiving UI benefits. Spending by families with an employed household head fell by 10% during the initial months of the pandemic, while expenditures by families whose head was an unemployment benefit recipients increased spending by an equivalent percent.

Thus, the evidence reveals that the two transfer programs central to the CARES Act—Economic Impact Payments, and federally finance expansion of unemployment benefits—were very effective in promoting expenditures to offset the downturn caused by the pandemic. In addition, the PPP, also assisted in offsetting the coronavirus recession in the late spring and early summer—but the impact of this supply side intervention was not sustained. Chetty et al. (2020) reported that the liquidity provided to recipients of PPP loans helped firms meet payroll during April and May of 2020, a period of extensive mandatory lockdowns. However, small firms receiving such loans struggled to prevent layoffs over the next few months given the depth and duration of the pandemic (Chetty et al., 2020).⁸

4.2. Evaluating monetary policy response to the coronavirus recession

The rapid onset of the economic downturn caused by the COVID-19 pandemic in March and April of 2020 in the U.S. led to an immediate monetary policy reaction by the FED that was broad and extensive. But was it effective in realizing the expanded liquidity and low interest rate goals of the FED? Cheng et al. (2020) explored this question in a white paper for the Brookings institute, which guides the discussion below of the FED’s response in the early phase of the corona-recession.

In the month of March, the FED cut by 1.5 percentage points both the rate it charged banks for loans from its discount window and the federal funds rate—the inter-bank overnight rate banks pay to borrow from each other.⁹ This brought each of these rates down close to 0%.

The distribution, and magnitude, of the FED’s efforts to ensure liquidity in the early phase of the coronavirus downturn was impressive. By mid-March of 2020, the FED pledged to buy at least $500 billion in long-term Treasury securities—an initiative called “quantitative easing”—and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” A week later it announced that it would buy as many of these types of securities as “needed to support smooth market functioning,” and was good to its word. Moreover, in early April the FED promised to provide $2.3 trillion in emergency lending to support local governments—by purchasing municipal bonds—and small and mid-sized businesses through the acquisition of corporate bonds.

In spite of these actions, the FED remained worried that large savings managers such as retirement funds would opt to avoid purchasing assets (i.e., making loans) and hoard cash. This would deprive the 24 large financial institutions known as primary dealers of sufficient cash to buy government issued securities which they could then sell to savings managers ensuring their clients experience positive returns. Thus, the FED made direct low-interest loans to primary dealers to keep the market for government securities properly functioning. Similarly, the FED made direct low-interest loans to commercial banks, through its Money Market Mutual Fund Liquidity Facility, to ensure they had sufficient funds to meet loan demands since the pandemic inspired withdrawals from commercial banks which could put upward pressure on their lending rate.

The FED also took aim on reducing economic uncertainty, which can deepen and perpetuate a downturn, by engaging in forward guidance. The FED unveiled forward guidance—a policy of actively informing the financial markets of its plans for the federal funds rate going forward—during the Great Recession of 2007–2009. The FED made clear its intention to maintain low interest rates until labor markets are strong and inflation settles into a rate in the 2% range. The idea is that this will prevent confusion regarding the FED’s view of the goal reflected in the combination of monetary and fiscal policies enacted soon after the coronavirus downturn set in.

5. Long-Run Effect of the Coronavirus Recession

A common debate among economists—at both the outset, and once recovery sets in—of virtually every recession is whether this particular downturn is different from the typical recession, and if it will have adverse economic and social consequences lasting well into the future. The evidence points toward the corona-recession having an enduring, and profound, footprint on work and social life—that differ from previous recessions—in three ways. The unique consequences of the corona-recession entail, accelerated adoption of emerging Fourth Industrial Revolution technologies, expansion of remote work, and deep unsettling emotional health problems, especially for young labor force participants. Each of these is discussed below.

5.1. Remote work: How it grew and it’s here to stay

Prior to the coronavirus pandemic few persons in the U.S. worked remotely, whether from home or elsewhere, on a regular basis.¹⁰ However there was a mild upward trend in this practice (Choudhury et al., 2019). Over the 10-year period from 2008–2017, the share of employed persons in the United States who identified as working from home increased from 4.1% to 5.3%. This was the results of on-going improvements in the availability and quality of broadband internet service and communications software. The main factor holding back the growth of remote work is a lack of trust—the longstanding belief held by managers that worker productivity would decline if employees were not in an office situation where supervisors could directly observe their activities.¹¹

The shelter-in-place orders and business lockdowns put in place in March and April of 2020 to contain the virus led many firms to put aside, at least temporarily, concerns about trust and worker effort, and allow employees to work remotely. Essentially, the pandemic created a large-scale work-from-home experiment. However, this opportunity was concentrated among knowledge workers, who tend to be more educated and wealthier, and whose primary workplace tasks could be accomplished using communication technologies such as Zoom, and Teams—along with analysis software, word processing, and e-mail.

Sixty two percent of employed American were working remotely from home by mid-April of 2020 according to a McKinsey and Company Survey (Boland et al., 2020). Firms quickly learned that many more tasks could be performed remotely than they had imagined. Dingel and Neiman (2020), drawing on data from the Survey of Business Uncertainty (SBU, 2020), report that nearly 40% of U.S. jobs can be performed remotely. In addition, they discovered that managers could monitor the efficiency of remote work.

Companies such as ActiveTrak, Hivedesk, Teramind, Time Doctor and WorkExaminer offer products that enable companies to track the activities of their employees by installing software on their computers (Dreyfuss, 2020). Most monitoring software will track keystrokes, email, file transfers, applications used, and how much time the employee spends on each task. In addition, the software can be set up to take periodic screenshots to let managers know what is on the employee’s screen. Moreover, a survey by software maker Atlas VPN, revealed that monitoring a single employee working remotely costs about $7 a month

Evidence is emerging that productivity is generally not compromised by working remotely. Choudhury et al. (2021) analyzed the performance of U.S. Patent and Trade office workers and found that output increased by 4.4% after a transition to remote work with no alteration in quality measured by the need to rewrite patent applications due to appeals. In addition, 48% of respondents to the CNBC Technology Executive Council survey conducted from June 2–15, 2020 reported that in their organization team productivity had increased since the pandemic began, and 40% said it had remained the same, while 12% cited a productivity decrease.

The combination of uncertainty about the future, evidence that many workers would like to work remotely, that performance can be monitored at modest cost, and a sense that output is not adversely impacted by working at home has softened managerial resistance to remote work. In fact, there is evidence that some entrepreneurs believe managers are moving to holding a favorable view of remote work.

Altig et al. (2020) analyzed one-year-ahead expectations of the executives who were respondents to the SBU survey (SBU, 2020), regarding the share of their firm’s work force that would be working remotely. They find that, on average, these executives anticipate the share of working days at home will triple in 2021 relative to the pre-pandemic situation—rising from 5.5% to 16.6% of all working days. Perhaps even more striking, they expect a three-fold increase in the percent of their full-time workforce that will be working from home five days a week in 2021 relative to 2019; an increase from 3.4% to 10.3%. Their findings broadly correspond with evidence from a survey on remote work conducted by Buffer (2021) in which 46% of the respondents indicated that their company was planning on permanently allowing remote work in 2021, a substantial increase compared to the situation in 2019. Similarly, Lund et al.’s (2020) analysis of a survey of 278 executive conducted by McKinsey in August of 2020 reveals that on average they plan to reduce office space by 30% in the next few years, which points toward greater remote work at their firms.

The increased momentum to embrace remote work is a change in the landscape of the American workplace brought on by the coronavirus recession that will have lasting effects on work and life in the U.S.

5.2. Automation and emerging technologies

The Fourth Industrial Revolution, characterized by greater use of artificial intelligence and machine learning along with industrial robots and sensors—was already firmly underway in the U.S. prior to the pandemic (Schwab, 2015). These technologies are complimentary to highly educated workers, especially those whose work is both non-routine and cognitive (Autor et al., 2003; Autor, 2014). However, for workers doing routine work—whether manual or cognitive—and whose highest level of schooling completed is either college or high school—the emerging technologies often substitute for them resulting in forms of automation that reduce job opportunities and wages (Acemoglu and Restrepo, 2020b; Autor and Dorn, 2013). Many of these workers became structurally unemployed—their skills do not match those sought by firms who are increasingly adopting new digital technologies that required workers to perform tasks for which they have insufficient training and experience (Acemoglu and Restrepo, 2019).

The social distancing requirements and stay-at-home orders imposed in the U.S. in the spring of 2020—generated a substantial, but temporary, decline in labor supply and hence a labor shortage. In response, firms were determined to discover new ways to adopt emerging technologies capable of performing key tasks with less human labor—referred to as automation forcing by Autor and Reynolds (2020). This led to a greater adoption of new and emerging technologies and the associated decline in labor demand—eliminating the labor shortage.

According to Autor and Reynolds, the pandemic accelerated the adoption of emerging forms of automation, assuring that technological unemployment will be an even greater concern when the pandemic wanes and persons who were displaced by the virus seek reemployment.

Kilic and Marin (2020) provided evidence that rich nations—Italy, Germany, France, and the U.S.—began to use more robots and associated technologies in response to the pandemic. They attribute this to two developments. First, a decline in the relative cost of emerging technologies—compared to labor—brought on by the corona-recession in the form of lower borrowing costs generated by the FED’s actions. Second, the greater uncertainty associated with relying on a supply chain of imported intermediate goods for manufacturing due to the expectation of additional lockdowns for leading trading partners. The anticipation of further disruptions in the supply chain essentially promoted reshoring of manufacturing in these nations, but to do so, and be cost competitive, they are automating. As noted earlier this is accelerating the trend of firms in the U.S. increasingly using Fourth Industrial Revolution technologies. Moreover, once firms make a commitment to a new production process—where tasks formerly assigned to human labor are handled by technology—the shift will be enduring; a long-lasting impact of the coronavirus recession.

Will the greater pace of adopting technology as a result of the pandemic lead primarily to displacement, and hence a persistent recession while the economy grows as many fear? Acemoglu and Restrepo (2019, 2020a) believed an alternative pathway forward is possible, one where the wave of new technologies adopted are complemented by new positions composed of a variety of tasks—some from jobs that have been displaced by automation, along with new tasks. However, for workers from across the skill spectrum to share in the prosperity fostered by the Fourth Industrial Revolution, society must demand—and public policy must incentivize—firms to create jobs for workers that support efficient application of the emerging technologies.¹²

Economists Autor and Reynolds (2020) and the McKinsey Global Institute (Lund et al., 2020) each predicted that due to the increased adoption of technology during the COVID-19 recession—more workers will need to switch occupations and be retrained, then had been anticipated prior to the pandemic.¹³ Evidence is emerging that people are aware, especially those who are unemployed, that firms are both implementing and planning for even greater use of technology, that displace labor (Wike and Stokes, 2018). For instance, a Pew Research Center Poll of adults in the U.S. conducted in late January 2021 (Parker et al., 2021; Long, 2021) revealed that among those unemployed two-thirds are “seriously considering changing their occupation or field of work.” A much smaller percent said that during the Great Recession where unemployment was largely due to deficient demand. This suggests that technological unemployment is a more pressing concern for today’s labor market participants—and will be for labor in the future—due to the more rapid adoption of technology to automate production fostered by the pandemic. Thus, when the recovery from the coronavirus recession is complete, according to the National Bureau of Economic Research’s Business Cycle Dating Committee, it may well be a “jobless” recovery.

5.3. Mental health and the coronavirus recession—setting new concerns

Every recession, a fall in real gross domestic product in two successive quarters, is also characterized by a rise in unemployment over that—and subsequent—periods. Psychologists Eisenberg and Lazarsfeld (1938) and sociologists Jahoda et al. (1933) argued as far back as the Great Depression that unemployment damages emotional health. They postulated that unemployment harms mental health by depriving persons of the monetary and nonpecuniary benefits of work (Jahoda, 1982), fostering feelings of helplessness, and generating both prolonged sadness and deep anxiety because of the failure to meet personal and social expectations (Seligman, 1975; Erikson, 1959).¹⁴ There is also extensive evidence from psychologists, and other social scientists, documenting a link between unemployment and poor mental health in general, for men and women, and across racial and ethnic groups.¹⁵ Thus, an adverse emotional footprint coincides with job loss during a recession.

Unfortunately, poor mental health as a result of traumatic experiences such as unemployment can be persistent, in part because only 45% of adults in the U.S. suffering from mental health problems receive treatment. This is of particular concern for young adults, those 18–25 years of age, because 61% of people in this age group experiencing psychological distress go untreated (NIMH, 2019). Moreover, there is evidence that treatment for emotional health concerns often results in incomplete recovery (Shelton and Tomarken, 2001).

The adverse mental health consequences of the corona-recession are especially worrisome, since in addition to the emotional health consequences of the unemployment created by the pandemic there is the emotional impact of the social isolation due to the lockdowns and social distancing. This later effect is unique to the corona-recession. It is the double source of mental health consequence of the corona-recession that is likely to result in persistent adverse emotional health effects for the pandemic downturn that exceed the long-term mental health consequences of prior recessions. Is there evidence indicating that the mental health consequences of the corona-recession are indeed severe, and are especially large for younger adults—those most likely to suffer from social isolation? We turn now to studies shedding light on these questions.

Fitzpatrick et al. (2020), using data from a large (i.e., 10,368) nationally representative sample of U.S. adults surveyed during the week of March 23, 2020, explored the emotional well-being of respondents throughout the early phase of the pandemic. Respondents reported mean depressive symptom levels that are in the clinical caseness zone—an indicator of symptoms severe enough to indicate the presence of major depressive disorder. Moreover, more than 25% of respondents reported moderate to severe anxiety symptom scores. Fitzpatrick et al. (2020) attributed the elevated markers of psychological distress exhibited shortly after the on-set of the pandemic in the United States to fear and uncertainty about exposure to COVID-19 and the consequences it will have for themselves, their families, their community, and the nation.

The findings reported by Fitzpatrick et al. (2020) coincided with evidence reported by the Center for Disease Control and Prevention (CDC, 2020a) on the emotional health of adults in the U.S. prior to the pandemic and shortly after the pandemic led to alterations in work and social life in the U.S. The CDC’s analysis was based on The National Health Interview Survey (NHIS) in 2019 which contained 31,997 adults, and the Household Pulse Survey administered in June of 2020 that included over 70 million adults. Each of these surveys separately collected information on major depressive affect and generalized anxiety—using the same set of questions—on a representative samples of the U.S. adult population. The findings reported by the CDC revealed that symptoms of anxiety disorder and depressive disorder increased considerably for adults, in general, in the United States during April–June of 2020—compared with the same period in 2019 (CDC, 2020a).

To further assess mental health, substance use, and suicidal ideation during the pandemic, the U.S. Center for Disease Control and Prevention (CDC, 2020b) administered a survey to a representative sample of 5,470 adults across the United States during June 24–30, 2020. Survey respondents reported if they were experiencing distress from one or more mental or behavioral health symptoms at the time of the survey. Moreover, the survey asked respondent if they were suffering from any Trauma and Stressor-Related Disorders (TSRDs) that they attribute to COVID-19.¹⁶ Overall, 26.3% of respondents reported suffering from symptoms of a trauma-and stressor-related disorder (TSRD) that they attributed to the pandemic. Moreover, 13.3% of the survey participants indicated they had started or increased substance use to cope with stress or emotions related to COVID-19.

In summary, the available evidence reveals that the corona-recession led to a decline mental health in the U.S. due to job loss and social isolation. Because there are two pathways to poor mental health generated by the corona-recession, while a typical recession only has one pathway—through job loss—the pandemic downturn is expected to generate a relatively high level of psychological distress. Moreover, recall that poor mental health caused by a trauma such as joblessness tends to be persistent. Thus, the emotional footprint of the pandemic recession is likely to be relatively deep and long-lasting.

It is reasonable to believe that the economic fear generated by the pandemic is greater for older adults, due to their greater family responsibilities and professional statue. However, it is also likely that the loneliness and feelings of isolation linked to COVID-19 are bigger for younger adults because of the importance of social interaction at their stage of life. Thus, an interesting question is whether, in total, the emotional misery brought on by the corona-recession is larger for younger persons—due to the importance they place on social life.

Among young adults—those 18–24 years of age—46% reported suffering from a TRSD (CDC, 2020b), which was more than two and a half times the share of middle age respondents—persons 45–64 years of age—who reported experiencing distress from a TRSD (17.2%).¹⁷ In addition, young adults were more than three times as likely—24.7% versus 7.7%—as middle age adults to begin or increase substance use to cope with pandemic-related distress. Thus, the findings reported by the CDC reveal that the social and psychological consequences of the pandemic are even greater for younger adults—possibly due to relatively strong social isolation effects—and likely to be persistent, due to the challenges of recovering from these maladies.

6. Conclusions

The U.S. economy experienced a historic decline in Real GDP at the outset of the coronavirus recession—in March and April 2020. However, due to a quick and large policy response, the U.S. economy also displayed an unusually rapid recovery in Real GDP—although not in employment—gaining back most of what it lost in the subsequent 3 months. However, there are elements of the coronavirus recession that will likely have profound and long-lasting effects on economic and social life in the U.S. that must be acknowledged in any accounting of this slice of U.S. economic history.

First, remote work became a common feature of the fabric of American work life—due to the fear that on-site work in an office would spread the virus. But every indication is that this “experiment” allowed employers to overcome their fear that productivity would fall with remote work. Thus, the solely office-centric work site setting is likely a thing of the past.

Second, employers embraced new technologies, because of the shortage of healthy workers brought on by the pandemic, and the low interest rate due to expansionary monetary policy. This action, increased the pace of adoption of technologies—many of which were applied in ways that displaced workers leading to technological unemployment, a form of structural unemployment. Once production takes this form, it is unlikely to return to a more labor oriented path because of the large fixed costs and the fact that sunk costs do influence managerial decisions. Thus, a present and future in which the share of unemployment attributed to technological advances has arrived.

Finally, the coronavirus recession unsettled the emotional well-being of people through job loss and social isolation—both features of this recession, the second of which sets it apart from other downturns. This cost of the pandemic contraction is likely to be long-lasting, since overcoming mental health challenges is difficult. Thus, a concern amongst health officials and policy makers is that society will be scarred emotionally, not simply blemished and the tell-tale signs will be evident long after the economy has recovered.

In light of these three unique, and durable, features of the coronavirus recession any impulse to downplay the impact on social and economic life of the COVID-19 pandemic—going forward—should be put aside.

Notes