Unemployment During Times of Crisis
Many countries, including the United States, are experiencing a rapid increase in unemployment due to the current pandemic. The United States has a 14.7% unemployment rate as of early May, and this number is expected to increase, however, this may start to recover as social distancing guidelines are slowly being relieved. The United States has witnessed mass unemployment in the past from The Great Depression and The Great Recession among other instances in history. What makes this current economic downturn different than others, is it being the result of an external factor and not an internal factor as we have observed from historic downturns.
The United States has experienced episodes of mass unemployment in the past during The Great Depression in the 1930s, and most recently, The Great Recession starting in 2008-2009. The Great Depression started in 1929, however, unemployment didn’t exponentially grow until 1931. The unemployment rate peaked at roughly 25% in 1933, but the social and economic impact carried into the early 1940s. According to an article published by San Jose State University, The Great Depression was caused by the collapse of private investment that brought along the economic boom the decade prior. Although GDP started to regain traction again in 1933, unemployment levels remained at about 15% for the rest of the decade.
Even those who were fortunate enough to have jobs were only working part-time. The domino effect resulted in American families separating, food lines, homelessness, and vagrant children along with a magnitude of other social issues. In an effort to save money, Americans sacrificed goods viewed as non-essential such as milk and dental care. The immediate drop in consumer spending is a continuing trend that can be observed in future economic downturns as individuals try to save money for the uncertain future.
The Great Recession did not scale to that of The Great Depression in terms of unemployment. The Great Recession reached an unemployment rate of 10% in 2009. This was an avoidable event caused by a lack of governance of financial institutions. The unemployment level did not recover until 2015 even though financial markets started to recover as early as mid-2011. Median household income did not recover until 2016 which may be a result of people accepting part-time jobs over their previous full-time jobs.
As of early May, the current unemployment rate is 14.7% or roughly 20.5 million people according to the Bureau of Labor Statistics. The current unemployment numbers nearly eliminated the 22.8 million jobs that were added in the 10 years following The Great Recession in a matter of months. With many states in the processes of relieving its social distancing guidelines, we hope to see a slow in the unemployment rate increase and those who were furloughed to make their way back to the workplace.
Compared to The Great Depression during the 1930s and Recession in 2009, this economic downturn was caused by an external event, not internal like we have witnessed in the past. This could mean the recovery could be more rapid compared to previous unemployment plunges, however, many economists predict the recovery to take 12-18 months.
Historic economic downturns that have resulted in mass unemployment are a result of internal factors such as a drop off in private investment and poor practices from financial institutions. The current downturn and rapid increase in unemployment is a result of an external factor that impacted the entire world in just a matter of months. This type of scenario has rarely been analyzed in the past and current projections predict the recovery could take as long as 12-18 months, but we don’t have much historical data feeding into the current economic and unemployment outlook.