This will be a very weird summer. By June 6th, everyone who wants a vaccine will have had at least one shot. People will still be dying of Covid, but the situation will seem much different. People will begin to act like the pandemic is over. But what will the new normal look like?
We won’t know for an additional three months, not until the extended unemployment compensation expires on September 6th. Until then, we’ll have a very unusual period for the US economy. Here are some predictions.
1. Because millions of unemployed workers in low pay service sector jobs earn more on unemployment than they did on their previous jobs, and because most of those jobs are unpleasant, employment will likely remain quite depressed all summer, before bouncing back in the fall. That’s not to say the economy won’t grow. The end of Covid makes it likely that sectors such as travel will pick up, but the quality of service will be lousy, perhaps the worst of my entire life.
2. America will become more corrupt, with more work being done “off the books” in small businesses. People will collect both wages and unemployment comp. Is there “hysteresis” in corruption?
3. In a macro sense, this is like the federal government hitting the accelerator and brake at the same time. The results will be interesting–perhaps a temporary spike in inflation. The RGDP numbers will look better than the employment numbers. Productivity will look good (relative to 2019), but the productivity figures will be unsustainable.
4. For many lower-skilled younger people it will be the best summer of their life. Three months without having to work and without the fear of Covid, all paid for by Uncle Sam.
5. There’s always a price to pay for unsustainable good times, and thus I expect the public’s mood to turn sour in the fall and winter, even as employment recovers—indeed because employment recovers. Someone has to do all those crappy jobs.
PS. Least I sound like a grouchy old guy, let me say that while the public policy here is not optimal, I’m not displeased to see young people have some fun. Over the past year they sacrificed a lot for older people like me.
Enjoy the summer everyone!
PPS. But stay off my lawn.
READER COMMENTS
BC
Apr 17 2021 at 3:10pm
(1) is already happening: https://www.wxyz.com/news/seasonal-work-available-in-metro-detroit-but-supervisors-struggle-to-find-applicants
I have heard second-hand anecdotal cases of (2): small business employees that will only return to work if paid in cash so that they can continue to collect unemployment.
Scott Sumner
Apr 17 2021 at 5:50pm
Thanks for the link. I forgot to mention illegal immigration, which should increase to fill some of these jobs.
Mark Brady
Apr 17 2021 at 8:18pm
It’s undocumented immigration, not illegal immigration.
“[T]he 14th Amendment … affirm[s] that neither the federal government nor state governments may ‘deny to any person within its jurisdiction the equal protection of the laws.’ An undocumented immigrant has violated immigration requirements, but is still a legal person under the law, as is anyone under the jurisdiction of the law. The equal protection clause was written to prevent state governments from defining any human being as anything less than a legal person.”
https://www.thoughtco.com/illegal-immigrants-or-undocumented-immigrants-721479
Mactoul
Apr 18 2021 at 12:19am
I wonder how is 14th amendment pertinent to the term “illegal immigration “
Steve
Apr 18 2021 at 6:25am
Does this mean I should start saying undocumented U-turn?
Anonymous
Apr 18 2021 at 8:40am
I think your link makes it very clear that illegal immigrants are legally still people.
Mactoul
Apr 18 2021 at 9:50am
Who has ever claimed otherwise?
Scott Sumner
Apr 18 2021 at 11:54am
Not sure what point you are trying to make, or how it relates to what I wrote.
FWIW, I favor an amnesty for all people who moved here illegally.
Monte
Apr 19 2021 at 9:45pm
The Equal Protection Clause applies to “All persons born or naturalized in the United States.” Undocumented immigrants do not qualify as citizens under the Constitution. They’re entitled only to those aspects of the Constitution that address basic human rights.
Michael Sandifer
Apr 17 2021 at 10:26pm
That moods will be down in the fall is an interesting prediction, especially for the reasons you cite. Do you think support for a UBI will rise as a result?
I think moods will be higher in the fall as the economy experiences a relative boom. I hope the Fed allows inflation to rise enough to test my hypothesis about sustainable potential real GDP growth. I still think the sustainable real GDP growth rate is over 3%.
Matthias
Apr 18 2021 at 4:29am
That depends on supply side legislation.
If eg suddenly building restrictions in big productive cities on the coasts would fall to the level of the median amount of restrictions, you’d have a big book on your hands.
Lizard Man
Apr 18 2021 at 8:48am
I don’t know what Prof. Sumner is thinking, but I suspect that if people start acting like the pandemic is over in the summer, at first they will have a bit of heightened good spirits. So during the summer, folks will be feeling good. But then come fall, they will start to feel a bit of a letdown. Things may have returned to something like normal, but once the novelty has worn off, people will remember everything about their normal lives that they were unsatisfied with.
Scott Sumner
Apr 18 2021 at 11:56am
They will have to go back to their crappy jobs.
Michael Sandifer
Apr 19 2021 at 4:44pm
It’s just my vague intuition that the good spirits will continue into next year and start to drop off before the next federal elections. The dropoff you predict seems too soon to me, particularly since the boom will still build into next year.
Ryan McPherson
Apr 20 2021 at 7:26pm
I think this will only further contribute to the stratification of the US (and, I suppose, everywhere). Not everyone has crappy jobs. A lot of people are perfectly satisfied with their jobs and will be very happy to be getting out again, to not be forced to do idiotic things like wear masks, walk in one-way lines, etc… to actually interact with people, attend shows, eat out, and so forth. There will be plenty of elevated spirits as governments back their boots off of people’s throats … and then you will also have all of the people for whom this has been one big extended vacation having to go back to their jobs and lives. And it is possible that the bill will come due (but that may not hit everyone directly).
Then again, you might assume a bit much. For instance, I live in WA state. The government in my state has no intention of this “emergency” ever being over. I don’t anticipate that the summer will return us to any normality, and if it does, that will be stripped from us once again in the fall, even if it has to be under some other excuse (now we’ll have to protect everyone from the flu, or from some mutant variant, or whatever else). Covid has essentially removed constitutional restraints on power, and I don’t think any left-wing governor is going to willingly let that go.
David S
Apr 18 2021 at 3:51am
“Someone has to do all those crappy jobs”
Any crappy job will be filled if an employer offers enough money AND has effective and supportive management. There are many types of crappy service industries, and some of them will be especially hard hit because their business models are based on low margins and bad service.
My suggestion to you, Scott, is to make a point of going to the best restaurants, hotels, and stores this summer. You’ll be served by happy people who are making decent money and glad to be back at work after collecting unemployment for a year. Even if they’re working under the table they’re going to be making the most of the opportunity. Avoid bargain outlets of all types–they’ll be staffed by vicious, surly, incompetent trolls—most likely managers who have to do more forward-facing service because they refuse to pay a competitive wage.
I also think the scenarios you describe will play out in different ways based on geography. High income areas will experience a more broad based recovery as the upper classes open up their wallets for indulgences. Parts of the Midwest and the South will probably follow the pattern you describe—a happy, weird summer and a souring fall and winter.
Scott Sumner
Apr 19 2021 at 1:30am
You said:
“Any crappy job will be filled if an employer offers enough money AND has effective and supportive management.”
And then cut wages sharply in the fall? Don’t forget that wages are sticky in the downward direction. These problems do not have simple solutions, or businesses would have already found answers.
Thomas Lee Hutcheson
Apr 18 2021 at 9:40am
We did not take the opportunity last summer n the CARES act to reform unemployment insurance, making it more generous (some percentage less than 100% of income lost, including health insurance, and including self employed), but also automatic tied to the economy, not some Congressionally dictated calendar and funded by a national consumption tax not a tax on wages.
Dawson
Apr 18 2021 at 10:25am
Profe Sumner’s move to California looks to have produced some progress on parking requirement reform there 🙂
Stephen
Apr 18 2021 at 10:28am
I wonder what will happen when the eviction moratorium ends in June. The original justification was: we can’t throw people out onto the streets while there’s a deadly virus raging. That justification will soon be gone, there are millions behind on their rent which they have no hope of repaying, then what?
Meanwhile, there’s a boom in sales of single-family dwellings.
I would ask what’s going to happen, but I don’t think anyone knows. Maybe the policy answer is for government not to do anything because of all the cross-currents, let the market sort itself out for a few months then step in after, but to what objective? To get back to where we were with tens of thousands homeless in SF and LA?
Just hunker down and hope the storm veers away from where you live.
Richard Wallace
Apr 18 2021 at 10:35am
You say that low wage people can earn more on unemployment than from a job. I realize that verbal elasticity is all the rage these days, what with everything being subsumed under infrastructure, racism, etc. I had always taken “earned” to involve compensation for performance. Nowadays, apparently, non-performance is performance.
Effem
Apr 18 2021 at 10:39am
Why does the Fed keep talking-up a focus on unemployment if they know the measure will be unreliable? Garbage in, garbage out.
Dzhaughn
Apr 18 2021 at 6:32pm
This just in: Buttigieg’s DoT will mandate a saftety feature in cars requiring the brake pedal to be depressed whenever the accelerator is used. “The Science demands it!” And Sumner is to blame. 🙂
We could develop an entire theory of this kind of regulation. Arnold Kling sort of has, but he focuses on the downside of stimulating demand while restricting supply, not the potential.
Roger Barris
Apr 19 2021 at 9:32am
It seems that we are, unintentionally of course, running a natural experiment on the incentive effects of a Universal Basic Income. And the results are not too encouraging for those who claim that UBI will not discourage work. (Of course, a proper UBI would be even more discouraging of work since people would know that it would be continuous, whereas at least now they have to think about having a job for when the enhanced unemployment expires.)
Scott Sumner
Apr 19 2021 at 12:00pm
I’m not a fan of the UBI, but this is certainly not a test of that idea. You don’t lose the UBI when you decide to get a job.
Gene
Apr 19 2021 at 11:03am
+1 Roger Barris.
People will be in an increasingly sour mood for at least another year—or at least I will—due to the fact that we’ll be wearing masks everywhere, flashing our vaccine passports frequently, etc., for at least that long. Public policy will be oriented toward accommodating the most risk averse 10% of the population for the foreseeable future. The old normal will never return and the new normal will be a life of restriction and seeking permission for an ever growing list of common activities.
Ryan McPherson
Apr 21 2021 at 1:05pm
Remove the mask and never put it back on.
The governors’ orders re: masks, etc… are based on emergency powers, none of which are justified anymore. This will not change unless enough people simply refuse to put up with it.
I would say that I took off the mask long ago, but the reality is that I never put it on to begin with. I am beginning to see more and more faces in grocery stores and elsewhere, as people simply decide that even though the government refuses to accept that this is over, it is over.
Fred_in_PA
Apr 19 2021 at 10:58pm
At Point #3, you speculate that;
Today’s Wall Street Journal has a similar headline on page A2;
As I read it, they largely blame shifts in the labor force; Particularly, a drop in the prime-age labor force participation rate from 82.9% a year ago to 81.3% today. And an upward shift in the long-term unemployed; there were 1.1 million a year ago and 4.2 million now.
My initial reactions to the WSJ headline were;
(1) If we’re churning out more goods & services, but we’re not correspondingly expanding the pool of people able to buy them, doesn’t that imply an increase in economic inequality? Those favored — who can buy the goods & services — get more; while those dis-favored — who didn’t get a job — continue at their currently impoverished consumption level. Or
(1a) Perhaps the economy initially produces more goods & services, but then runs into a dearth of consumption as there are very few new buyers. Couldn’t this be dis-inflationary (or should I have said “deflationary?), as prices would be forced to fall to clear the market? Or
(2) Might the GDP gains be illusory — mostly a measurement error, as the dollars we use to count all this with become worth less and less? (But you did say RGDP.)
I admit to being an amateur in this area. What might someone wiser conclude?
Comments are closed.