3 Phases of the COVID-19 Recession

The coronavirus pandemic has led to job losses that are orders of magnitude deeper, broader, and more rapid than the United States has ever experienced before. The losses have occurred in waves, affecting different industries at different times. 

We can think of the recession as having taken place in three phases.  

1. Temporary Layoffs in Face-to-Face Service Industries 

Initially, the pandemic forced restaurants, theaters, hotels, gyms, clothing stores, salons, and dentists’ offices to close and place workers on temporary layoff. Between February and April, the number of Americans classified as employed fell 16.0% from 158.8 million to 133.4 million. Younger workers under age 25 (-31.3%) and Hispanics (-20.9%), who are heavily overrepresented in the restaurant industry, saw the largest declines. The least-educated workers, whose jobs were least amenable to remote work, were also disproportionately affected. (Employment declined “only” 6.2% for college graduates, but 26.0% for high school dropouts.) 

But as temporary lockdowns were extended again and again, many service sector businesses realized they would not recover, and temporary layoffs became permanent. Household-name brands filed for bankruptcy or announced store closures—among them  J.C. Penney, Neiman Marcus, J.Crew, CMX Cinemas, Gold’s Gym, 24 Hour Fitness, Hertz, and Chuck E. Cheese. The restaurant industry prepared for permanent closures of up to 200,000 locations.

2. Permanent Layoffs Across Most Industries 

The effects of losses in travel, tourism, and face-to-face service industries soon rippled through the economy. Declining retail sales reduced demand for wholesale purchases and erased the sales tax revenues on which state and local governments depend. A dramatic pullback in advertising spending forced closures or cuts in dozens of newspaper and radio newsrooms and slashed tech industry revenues. 

So after March saw record-smashing layoffs in the leisure and hospitality and retail sectors, April saw record layoffs almost everywhere else: mining and logging, construction, durable goods manufacturing, wholesale trade, information, financial activities, and state and local government. 

3.  A Slow, Fragile, Partial Recovery

The May jobs report showed a partial recovery, with 15% of those who had been on temporary layoff in April recalled in May. Meanwhile, the number of unemployed Americans who reported having lost their jobs permanently actually rose by 295,000, with losses appearing in even the highest-paying white-collar industries, such as computer systems design, management, film, telecommunications, and broadcasting. Job postings, which had fallen 47% since February, according to ZipRecruiter data, failed to show measurable improvement through May and June. 

The last major global pandemic, the 1918 influenza pandemic, caused much graver devastation and was followed by the roaring twenties. So the labor market is sure to recover. The question is how soon it can rebound and what it will look like when it does. 

A longer version of this piece first appeared here, published by the Center for Workforce Inclusion.  

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Julia Pollak

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Julia Pollak is a labor economist at ZipRecruiter. She provides insights and analysis on current labor market trends and the future of work.

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