The Economic Impact of Covid-19 (Free Essay Sample)

Covid-19 unleashed a global economic crisis so unprecedented, impactful, and far-reaching that the world has still not fully assessed the damage more than two years after its emergence. In the U.S. economic losses were on a massive scale and became a pressing issue for the Trump and Biden administrations to combat. While earlier-pandemic related recessions such as the one triggered by the 1918 influenza led to an output loss production and unemployment rates rising, Covid-19’s economic impact was unique due to the large-scale lockdown policies mandated across the country. Nationwide lockdowns significantly impacted the United States where real GDP dropped by 35% from Q1 to Q2 of 2020 (BEA). At the same time, unemployment rates rose where the peak unemployment rate was at 14.7% in April 2020 (Weinstock). Sociologically, Covid-19 left lasting impressions on people’s beliefs and influenced their behavior in terms of consumption and the balance between work and leisure. On a macro level, the labor market shifted from physical production to remote overnight which caused many businesses to adapt to virtual work. To combat the destructive impact of the pandemic, the U.S. government executed a $4.58 trillion Covid-19 relief plan which included providing stimulus checks directed at the unemployed and low-income individuals (USASpending). Likewisel the FED lowered their federal funds rate to circulate more money into the economy. By increasing U.S. government spending and lowering interest rates, the government hoped to stimulate the economy to rebound to pre-pandemic levels.

In 2020, the majority of states and major cities implemented a curfew and forced people to self-quarantine which caused the consumption of industries including retail stores, food services, and travelling to decline drastically. Airports shut down the majority of their flights as air-travel became a dangerous way of spreading the disease. This led to thousands of workers losing their jobs and their only source of income. Between January 2020 and April 2020, 22.1 million people lost their jobs nationwide (Falk et al, 2). However, some industries benefited from Covid-19 closures including grocery stores, pharmacies, and online/technology. For example, businesses and schools closing down creating a new demand for online video conferencing services so that these industries could transition to providing services virtually. Many people were forced to work online and all students had to take classes online. As a result, Zoom, a leading company in the telecommunications industry was well-positioned to take advantage of people going remote where they essentially had a monopoly over the remote-working and remote-learning industry. In their Fiscal Year 2021 financial statement, total revenue was up 326% year-over-year (Zoom).

The industries that were impacted worse by the pandemic consisted of workers who came from low-income households and were people of color or women (Karageorge). Non-white, low-wage earners suffered disproportionately as their jobs were generally physical labor that couldn’t be performed anymore due to quarantine restrictions. Higher-paying jobs typically performed by white workers were more elastic in terms of their ability to go remote which allowed many of them to keep their jobs. While previous recessions disproportionately impacted low-wage working-class men, the Covid-19 recession was especially damaging to working women due to different sectors of the economy being impacted more. Women mainly worked in restaurants, retail establishments, hospitality, and health care -- all sectors that were essentially shut down amidst the pandemic (Karageorge). Particularly in health care, where many workers are women, the demand for both health care workers and labor forced the industry’s workers to work overtime with limited resources. Likewise, the shutdown of schools and daycare centers nationwide kept kids at home, making it harder for parents, mainly women to keep working. Moreover, many people who were close to the retirement age chose to retire early due to the increasing predicament of the pandemic. While this didn’t directly raise the unemployment rate, it nevertheless reduced the labor force and output for many industries that had a rising labor demand during lockdown. Therefore, Covid-19’s effect on the economy led to a short, but unprecedented recession that had unemployment rates rise and real GDP plummet.

In response to the pandemic, the U.S. government took a Keynesian approach towards the pandemic wherein 2020, the Trump administration implemented the usage of stimulus checks targeted towards individuals with lower income individuals who were generally impacted worse by the pandemic. These checks gave these individuals more purchasing power which increased consumption and saving among businesses and peopel. With higher consumption, demand also increased and businesses employed more workers. As a result, wages increased, which in turn, boosted consumption in a cycle that helped energize the economy. While the country had seen a significant reduction in the unemployment rate and increased GDP, these stimulus checks had a drawback. From December 2020 to December 2021, inflation increased by 7% -- the highest December to December percent change since 1981 (BLS). When stimulus checks were issued, consumption increased which raised price levels, especially for essential goods that everyone needed during the pandemic. The economy did show a rising real GDP and lower unemployment rate, but that doesn’t necessarily mean everyone was better off as the rising price levels made everything more expensive to purchase. In more recent news, the Biden Administration last year signed off on an additional $1.9 trillion in federal spending for Covid-19 relief (Sheiner et al). The plan sent more direct payments of up to $1,400 to most Americans which helped revitalize the GDP back to where it was pre-pandemic (Penn Wharton, CNBC). While these stimulus checks offered a short-term spark in the GDP, some people stopped looking for work entirely as stimulus checks were more than what they were making before. Likewise, the U.S. also increased its debt by more than 7% which is concerning as it adds to what already is one of the leading countries in debt (Penn Wharton). In the long-term, it’s uncertain whether the U.S. will be better off as it depends on whether the government can pay off its debt that it used to save people from poverty and businesses from going under during the pandemic. 

In addition to stimulus checks, the Federal Reserve played a major role in both stabilizing and stimulating the economy. In March 2020, The FED lowered the target range for the federal fund’s rates to near zero (0% to .25%) which made borrowing notably cheaper. As borrowing became cheaper, more individuals and businesses were encouraged to consume and invest more. Likewise, the FED made several strides in unfreezing key financial markets including the U.S. Treasury securities. During early and mid-March, U.S. Treasury securities showed extreme strains where securities were volatile and difficult to sell. In April 2020 alone, the FED increased their securities holdings by $1.2 trillion, helping inject cash into the economy. (Labonte, 2). By placing more capital into the money supply, the FED helped lower the unemployment rate since banks loaned out more to businesses and individuals which allowed them to hire more people. In March 2022, The U.S. Department of Labor reported that the unemployment rate declined to 3.6% which was close to pre-pandemic rates of around 4% (BLS, 1). Notable job gains were seen in leisure, hospitality, business services, and manufacturing (BLS, 1). While this could be attributed to the country simply opening up and having more demand for these industries, the FED most likely helped reduce unemployment rates and raised the real GDP by lowering the federal fund’s rates and buying more securities. 

While the country recovered a significant portion of its losses in real GDP and unemployment, the Covid-19 pandemic had permanently changed the economy and people’s behavior toward working (BEA). After seeing the benefits and increase in leisure time by working remotely, many people were inclined to stay remote compared to going back to a physical workplace. Likewise, the rise in unemployment caused millions of people to relocate to other industries that weren’t hit as hard. When the country began to recover, many people chose not to go back to their original job. Many higher-income households emerged unscathed financially whereas low-income households bore the brunt of the pandemic’s impact. Lastly, unlike past recessions, women were impacted more as several women-dominated sectors were shut down during lockdown. In spite of the government’s stimulus checks and reduction of federal funds rate target range re-energizing the economy and lowering the unemployment rate, it is unclear whether the government will be able to pay off its debt and lower inflation rates that its short-term actions created.