Economists often use letters of the alphabet to describe how they think the economy will recover from a recession. A ‘V’ shaped recovery, where everything bounces back very quickly, is often talked about but rarely experienced. An ‘L’ shaped recovery describes a sharp drop and a long delay before any recovery can be seen. For the current economic situation, commentators are frequently using the letter ‘K’ to describe what they see happening. A ‘K shaped recovery refers to the two legs of the K – things get better very quickly for those on the upper leg of the K, but a recovery is delayed for those on the bottom leg.
Recessions have different impacts on workers, depending on factors like industry, location, and age. COVID-19 has magnified this reality for two reasons. The scale of employment impacts has been much larger than recent recessions, and there have been markedly different outcomes for workers based on a few key characteristics.
Workers largely fell into three categories: those who were able to work from home, essential workers whose work must be conducted in person, and workers who lost employment because their workplace scaled down or shut down completely. At the peak in April, five million people were able to work from home, seven million continued to work in person, and 5.5 million people lost their job or most of their hours of paid employment.
Initial job losses and the extent of employment recovery vary significantly by industry. Those who were able to work from home were concentrated in a few industries with higher wages, like finance, insurance, and professional and technical services. Those who lost their jobs or hours of work were more likely to be precarious workers in service industries, such as accommodation and food services, recreation, and retail. Even within industries, precarious workers are more likely to have lost employment compared to people with permanent and full-time jobs.
When talking about the shape of an economic recovery, economists are usually thinking about graphs marking the change in a few key indicators, like gross domestic product (GDP), stock market prices, and employment rates. Sometimes these indicators have similar recovery trajectories, but this will depend on what has caused the recession, and how adept policy makers are at responding to the crisis.
With COVID-19, the stock market recovered faster than any other measure, largely because of central banks that lowered lending rates, and national governments that offered numerous lending and income support measures to stabilize parts of the economy.
Savings rates have increased, as higher income households have spent less money on eating out, travel, and recreation. The housing market has surprised by continuing to grow in most Canadian cities, but this may be partly due to low mortgage rates and households deciding to put their increased savings into real estate. At the same time, an increased number of renters who have been unable to keep up with rent payments are facing evictions.
The current economic crisis has not had an equal impact, whatever shape is used to describe it. The shape of the recovery from this point on depends on how well jurisdictions are able to limit the spread of COVID-19 and maintain support for those who have been most affected through job loss and illness. Governments must not shy away from continuing to make much-needed investments in our health and our economy throughout the recovery.