Unemployment will be with us long after COVID-19 has left

Unemployment COVID-19 coronavirus Australia recession depression business crisis employers employees
Some analysts are predicting Australia's unemployment rate could reach as high as 20%.

Unemployment, it is a big ugly word and we are going to hear about it a lot more in the years to come, long after the COVID-19 crisis has become a distant memory.

Even with several mega-stimulus packages from the Federal Government and some from state governments, unemployment due to the virus caused shutdowns is set to rocket from 5.1% to double digits by the middle of this year, with some predicting it could even rise as high as 20%.

That is a massive problem on many levels because the one thing we have learned from previous recessions with high unemployment is that jobs do not simply spring back like an elastic band.

Unemployment is a lagging indicator

As a lagging indicator, unemployment lingers for many years even long after the economy is back on a solid growth trajectory.

This time is unlikely to be an exception, which is terrible given that Australia’s unemployment rate was already on the high side compared to many other nations including the United States.

One thing that is virtually guaranteed is that there will be a considerable amount of corporate restructuring being planned for when the economy begins to recover, with shell-shocked businesses of all types, large and small, trying to bolster their battered balance sheets by reducing head counts.

Businesses will restructure and close because of the crisis

Already we have seen one small example with the fact that Virgin Australia has made redundant all of its Tigerair pilots.

Even if Tiger resumes flying after the current stoppage – which is by no means guaranteed – there are almost certain to be fewer pilots working for the wider Virgin Australia group as new rosters and restructured flight schedules are arrived at.

That is just one microcosm of a much broader picture right across the Australian economy and particularly in the most hard-hit sectors such as travel, retail and hospitality.

It is not a matter of arguing that this time things should be different because the virus is an unexpected external shock – the cause of the unemployment is almost immaterial in what happens afterwards.

It is also not a criticism of the businesses involved.

Never waste a crisis not the only issue

While there may be some businesses that react in an opportunistic “never waste a crisis” fashion and take advantage of picking and choosing between returning employees, the brutal reality is that many companies will not be able to support the same number of workers.

Some businesses simply won’t survive and those jobs will be lost.

ScoMo knows employers will lose touch with employees

You can see that Prime Minister Scott Morrison is well aware of the size of the unemployment crisis because of his repeated pleas for employers and employees to remain in contact.

He knows all too well that once that nexus is broken and the holiday pay runs out, the chances are that some of the temporarily unemployed will become unemployed for much longer.

A look at previous recessions is instructive.

Unemployment remained high long after previous recessions

Back in the recession in the early 1980’s, the unemployment rate increased from 5.5% to 10.5% over two years.

It then took a further six and a half years for the unemployment number to slowly work back to where it started.

During Australia’s most recent recession in 1990-91, unemployment kept rising long after the economy returned to growth.

The unemployment rate went from around 6% to a peak of 11.2% in late 1992 and remained above 10% until April 1994.

It took around a decade for the unemployment rate to return to its former level.

Not a happy picture for the young and those above 50

Of course, these figures are overall numbers and the picture may be even worse if you drill into certain demographics – say, men aged above 50 or young people in general.

The point is that unemployment is going to be a significant practical and political problem long after the COVID-19 crisis is over.

In simple terms, the spending power of public and private employers will have been damaged by this crisis and it will take time for it to return.

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