Impact of COVID-19 on Unemployment
This pandemic is said to be the worst ever for the working class. The cutbacks during the pandemic throughout the world are predicted to be close to 200 million full time workers in the next three months alone. As of April 7th 2020, CMIE’s website put out an article stating that India’s unemployment rate spiked to 23 percent post the lockdown imposed during the first week of March. Since then the lockdown has continued and the unemployment rates have spiked even higher. As of 1st May, unemployment increased 14.8 percentage points and reached a rate of 23.5%. Some states have higher rates of unemployment than others: Tamil Nadu’s unemployment was highest with a rate of 49.8% in April 2020 which is a huge shift from 6.3% in March 2020. Shown below is a graph which indicates the rapid increase in India’s unemployment rate due to the pandemic.
Meanwhile in the United States, more than 26 million people filed for unemployment aid since President Trump declared national emergency on 13th March. This number is much larger than the 15 million that had lost their jobs during the Great Depression and the 9 million that had lost their jobs during the Global Financial Crisis.
However, this high rate of unemployment in the United States does not extend to all the sectors of employment. Sectors such as agriculture, entertainment , construction and transportation have all seen a drastic rise in their unemployment rates. A large part of these extraordinary rates is due to the lockdown imposed in various countries, which results in the above mentioned jobs not being able to be carried out. Sectors such as health, education, government workers have not seen a major increase in their unemployment rates. In fact, in the health sector unemployment rates have fallen due to the increased demand for healthcare professionals to treat the numerous patients suffering from the coronavirus. Below is a statistic showing the current unemployment rates by industry and class of worker in the United States in March 2020.
These high unemployment rates have a very harmful impact on countries all over the world-the most harmful one being an increase in poverty. According to the World Bank this pandemic has pushed about 40-60 million people into extreme poverty worldwide. In India, lack of food and shelter has resulted in a mass exodus of migrant labour to head back to their hometowns, even without proper means of transport. This unemployment also has resulted in a decrease in aggregate demand of goods and services since the people do not have money to spend. This has hindered economies and resulted in a fall in the GDP of countries globally. High unemployment could lead to an increase in the crime rates because the people need to take care of their daily needs, but they not might have the adequate amount of money with them, since a large part of the population are working with low or no wages, and under un-favourable conditions. In addition to reported unemployment, there is a high rate of disguised unemployment taking place as well in India. Disguised unemployment is a situation in which more workers are working in an activity than required. This means that the actual rate of unemployment could be much more than what is being reported.
The short term, medium term and long term repercussions of this high rate of unemployment could be a reduction in the revenue earned by the businesses which could result in them cutting costs, lowering wages and even employing less labour. This would result in further decrease in the demand and a further decrease in the revenue earned by businesses. This is a vicious cycle which needs to be broken as soon as possible.
According to the Keynesians, the way to break this vicious cycle is by pumping government spending into the economy by investing in infrastructure. The key to get out of this cycle is by increasing the aggregate demand, which can be done if the government reduces taxes or by providing cash transfers directly to the bank accounts of the unemployed people.
Multiple steps may need to be taken to create jobs, so that the demographic dividend of India, which was its boon, does not become its curse.
Dhruv Dhawan is a high school science student, currently interning at Plan Ahead Wealth Advisors, and exploring the overlap between social sciences and the impact result of COVID 19 on the world in terms of multiple aspects.