How this recession is different
The pandemic is striking directly at the heart of what has historically made America stronger than almost any other global economy — our awesome productivity.
Why it matters: Modern recessions, even the Great Recession of 2008-9, have tended to have little to no effect on how efficiently America produces goods and services. This recession is different. COVID-19 has hammered the potency of our companies and workers.
How it works: COVID-19 has deeply changed the way the country works.
- Working from home has damaged companies that invested in sparking creativity and innovation by bringing employees together in thoughtfully-designed offices.
- Teachers worry more about distancing and ventilation than they do about education.
- In nursing homes, aides now have one job — preventing the spread of the virus — that has a higher priority than everything else.
- In travel, the basic economics of whole industries have been upended. It takes just as many pilots to fly a socially-distanced plane, for instance, as it does to fly a full one.
Show me a business that involves individuals entering a building, and I'll show you a business where leaders are being urged to put significant new resources towards social distancing, ventilation, temperature checks, health attestations, contact-tracing databases, ubiquitous hand sanitizer stations, and myriad other COVID-related expenses.
- While employers are forced to spend time and money on such projects, employees are also being hit hard. Many are struggling with suicidal thoughts, while Wall Street executives talk about having to deal with "rolling nervous breakdowns.”
- "People are living at work," says Abby Levine, a principal in Deloitte's real estate group. "That has a physical, emotional, and mental impact."
By the numbers: The recession is bad enough — deeper and faster than anything we've experienced in living memory. The hit to productivity comes on top of that.
- Stanford economist Nicholas Bloom sees productivity declines within firms of between 5% and 10%. "These falls are not surprising," he says, "but are absolutely massive."
- For some service-industry sectors, the decline in productivity means thousands of businesses have to shut down entirely, since they can no longer make a profit. Restaurants are a prime example.
The bottom line: So long as COVID-19 continues to spread at a rate of more than 50,000 new cases per day, the virus will continue to act as a deadweight on the economy, depressing productivity — and total economic output — to well below pre-crisis levels.