Will the Jobs Market Quickly Bounce Back After COVID-19?

• Author: Jacob Greene
• Posted: 2024-10-07

The job market in the U.S. is seeing distress that it has not witnessed since the throes of the Great Depression. Never before in U.S. history has the country lost such a large proportion of its jobs in such a short time. While most are focused on keeping their heads above water right now, experts are also speculating about when the job market may bounce back. Before the COVID-19 crisis happened, the job market was historically robust. Now, experts are forecasting that the job market will not bounce back quickly, even if there is some level of recovery from the depths of the current crisis.

Whether and how fast the job market recovers obviously depends on the overall recovery. There has been much debate about the shape that the recovery will take. Many have promised that there would be a V-shaped recovery as the economy opens back up when the threat is lifted. Others have forecasted a more difficult U-shaped recovery as the virus continues to take a toll on businesses. Finally, the most pessimistic forecasts call for an L-shaped recession in which there is little to no recovery.

Previous Rosy Forecasts Are Beginning to Dissipate

Experts are beginning to believe that the job market will not snap back in the immediate short term in the wake of coronavirus. Currently, 22 million have filed for unemployment just in the last four weeks alone, and the number will likely increase in the coming weeks.

This leaves quite a bit of overhang in the job market that may prevent a quick recovery. In the past month, nearly all of the jobs that were created after the Great Recession have evaporated as companies have made layoffs and furloughed workers. Much of how the job market recovers depends on whether the country starts to travel, attend events and purchase in the future. Only then, will companies begin to rehire the people who they let go, and in many cases, some of these jobs may be lost forever as the economy retrenches after the COVID-19 crisis settles.

In other words, there have been such massive disruptions and dislocations that it will take some time for the proverbial dust to settle. Companies will likely ease into rehiring workers as they see demand materializing. It is doubtful that they will simply bring all of their workers back at once. Many laid off workers are likely to experience long-term unemployment as a result of this crisis.

Automation Will Cause Ongoing Disruptions in the Jobs Market

There are two other factors that will impact how the labor market bounces back from COVID-19. The first factor is the fact that the economy had to undergo a jarring change in the way that goods and services are provided. Because of exigent circumstances, companies had to quickly figure out how to stay in business without using in-person services. They may have been forced to automate or streamline their operations. As a result of what they have learned during COVID-19, they may continue this shift once the economy fully reopens. Some services may go virtual, reducing the need for employees. This change in the economy was long in the works before coronavirus actually accelerated it.

The second factor is how wages will respond to the changing economy. It took many years after the economy emerged from the Great Recession for companies to start giving employees meaningful growth in their wages. Most companies in this economy will pay employees one penny more than they have to in order to keep the employee from leaving for a new job.

With so many people out of work and desperate to get back to earning a living, the companies who are hiring have all of the leverage when it comes to the salary that they offer. Given people's need to work, they will have less negotiating power over their earnings. Wages only grow when companies become more desperate for scarce workers, and laborers will hardly be in short supply given the number of people who are currently out of work. The desperation alone with keep wages depressed for several years to come.

It is likely that any growth in the labor market will occur slowly over at least the next year as the economy gradually recovers. Anyone expecting things to return to what they were by the end of the summer fails to understand exactly how catastrophic COVID-19 has been for the economy.