An Analysis of Employment In Light of COVID-19

Unemployment and the Economic Repercussions of COVID-19

During the COVID-19 pandemic, about 9.6 million Americans lost their jobs (Bennett, 2021). With an economic contraction of 19.2%, firms have struggled to maintain revenue consistent with their pre-pandemic numbers (Mutikani, 2021). As firms have struggled to generate revenue consistent with previous years, they have been forced to make lay-offs. While nearly every major industry saw an increase in unemployment, sales and food services were among the most heavily impacted by the economic recession.

Unemployment Defined

Unemployed individuals are members of the labor force who are not currently working but who are available for work and searching for it (Taylor, 2017). Unemployment caused by the pandemic can be categorized as cyclical unemployment (Taylor, 2017). Cyclical unemployment is caused by cycles of economic upturn and downturn (Taylor, 2017). Economies will go through “cycles” or periods of expansion or recession. In the case of the COVID-19 pandemic, economies across the globe faced recession. A recession occurs in a business cycle where there is a notable decrease in economic activity (Taylor, 2017). With the onset of the COVID-19 pandemic, economic activity decreased while fears of the virus increased. As a result of decreased economic activity, businesses have been forced to lay off employees. Studies indicate that the U.S. economy contracted by 19.2% during the COVID-19 pandemic (Mutikani, 2021). Even now, the economy is still recovering and many people find themselves out of work. As in the case of food services, “restaurant and foodservice industry sales fell by $240 billion in 2020 from an expected level of $899 billion” (King, 2021). At the pandemic’s worst, food service employment fell by 50%. The correlation between recession and unemployment can give economists an idea of how the economy is performing.

Factors that Lead to Unemployment

When firms produce less income, they produces less profits. The results of reduced revenue and profits are typically downscaling. Companies are forced to downscale when they are no longer profitable at their current rate of production. Low demand creates a surplus of products and services that firms are willing to supply in comparison to the quantity that is demanded (Taylor, 2017). However, the costs of production becomes greater than the revue generated in this scenario which forces firms to produce less. When firms are forced to produce less, they are often forced to cut assets or variable costs. Variable costs are the costs of variable inputs. The only way to increase or decrease output is by increasing or decreasing the variable inputs. Therefore, variable costs increase or decrease with output (Taylor, 2017). Employees are considered to be a variable cost because the number of employees hired impacts firms’ output. However, many companies can no longer afford to pay the same number of employees they did before the pandemic as a result of revenue decline. With an economic contraction of 19.2% and 22 million unemployed individuals, companies have struggled to maintain revenue consistent with past years (Mutikani, 2021).

Impact on the Food Service Industry

As can be seen in figure 1.1, the food industry was severely impacted by the COVID-19 pandemic. Sales in the industry fell by $240 billion in 2020 from an expected level of $899 billion (King, 2021). Many states, including Illinois and California, shut down indoor dining services. More than 110,000 eateries and drinking establishments closed in the year 2020 (King, 2021). Along with the closures, approximately 2.5 million jobs were erased from pre-pandemic levels (King, 2021). These former employees are still considered to part of the labor force, assuming that they are available and searching for work (labor force is the total number of employed and unemployed individuals). The graph below represents a comparison between employment during January 2020 and September 2020. As the graph displays, the pandemic had its greatest impact between March and May. Employment totals fell by nearly 50% in the food industry (How Has the COVID-19, 2021). This measure of unemployment is indicative of economic recession. When the economy is expanding there may also be unemployment as new jobs become available and workers have not yet been matched with jobs (Taylor, 2017). However, the employment which resulted from the COVID-19 pandemic resulted from decreased economic activity. This resulted in decreased revenue generated by businesses. Thus, firms were forced to lay off employees.

Impact on Sales and Management Employment

The sales industry has also taken a hit during the pandemic. According to the data, sales employment fell about 20% at its worst during the pandemic (How Has the COVID-19, 2021). This is not an unexpected repercussion of economic recession, as sales work is directly correlated to economic activity. During times of expansion and growth, sales positions thrive as the economy does. However, they also struggle during times of recession when companies and individuals are less incentivized to make purchases. Firms and individuals have less incentive to purchase during times of economic recession. This decreased demand for dining services. With decreased demand, restaurant firms received less income. Unlike restaurant and sales positions, management jobs were less impacted by the unemployment surge of the COVID-19 pandemic. Management positions are not as correlated to immediate performance as a sales representative would be as an example. Where sales representative’s success correlates almost directly to their ability to sell, management is not as simple. It is required in almost every area that firms operate.

Conclusion

The COVID-19 pandemic has resulted in increased unemployment and decreased economic activity. Taking these factors into account, it can be determined the economy has receded during the pandemic. This resulted in many firms being forced to lay off employees, especially in the food services industry and sales positions.

Figure 1.1 From: (How Has the COVID-19 Recession Affected U.S. Labor across Occupations and Industries, 2021)

References

Bennett, J. (2021, April 15). Fewer jobs have been lost in the EU than in the U.S. during the COVID-19 downturn. Pew Research Center. https://www.pewresearch.org/fact-tank/2021/04/15/fewer-jobs-have-been-lost-in-the-eu-than-in-the-u-s-during-the-covid-19-downturn/

How Has the COVID-19 Recession Affected U.S. Labor across Occupations and Industries? (2021, August 12). Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/on-the-economy/2020/november/covid19-recession-affected-labor-occupations-industries?utm_source=Federal+Reserve+Bank+of+St.+Louis+Publications&utm_campaign=456fc0599e-BlogAlert&utm_medium=email&utm_term=0_c572dedae2-456fc0599e-57436729

King, R. (2021, January 26). More than 110,000 eating and drinking establishments closed in 2020. Fortune. https://fortune.com/2021/01/26/restaurants-bars-closed-2020-jobs-lost-how-many-have-closed-us-covid-pandemic-stimulus-unemployment/

Mutikani, L. (2021, July 29). U.S. economy contracted 19.2% during COVID-19 pandemic recession. Reuters. https://www.reuters.com/business/us-economy-contracted-192-during-covid-19-pandemic-recession-2021-07-29/

Taylor, T., Greenlaw, S. A., & Shapiro, D. (2017). Principles of Economics 2e. 12th Media Services.