The emergence of the COVID-19 pandemic early in the year 2020 impacted all parts of the world. The announcement of the virus spreading in different parts of the world created panic. One of the negative impacts that the pandemic had was the loss of lives. However, the pandemic also impacted the United States economy by causing increased unemployment and changes in the financial markets. This paper analyzes the impact that COVID-19 had on the North American economy by examining the impact on unemployment and finances.
Unemployment
COVID-19 had a drastic impact on the labor market. According to Couch et al. (2020), the unemployment rates jumped to 14.7 percent two months after the government had initiated the social distancing measures. The unemployment rate of such a magnitude had never been experienced in the United States since the great depression. The authors also examined the impact that the pandemic had on the employment of the different minority groups. The study revealed that African Americans experienced an unemployment rate of 16.6 percent, while the unemployment rate for the Latino group was 18.2 percent. However, as the pandemic continued, the unemployment rate reached a peak level of 26.5 percent for the entire population. The minority groups that were affected were the African Americans who experienced an unemployment rate of 31.8 percent and 31.4 for the Latino groups. The analysis showed that the COVID pandemic had a significant negative impact on minority groups.
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The impact of the employment rate can also be studied by considering the difference in unemployment by age, education, gender, and ethnicity. According to Moen et al. (2020), the impact of the pandemic was pronounced on young adults, and young women experienced the highest risk of unemployment. Individuals that had less than a college degree and were between their 50s and 60s were also more likely to be unemployed. The study showed that Black men that had a college degree experienced about 12.4 percent increase in being unemployed. Asian men that were in the 60s experienced an increase in 6.6 percent of unemployment while Asian men in their 70s experienced an increase in unemployment by 8.9 percent. While the government strived to undertake measures to improve the economy, those measures had a low impact on the employment rates for most of the population.
Different countries took different approaches to combat the effects of the pandemic. According to Korman & Mujtaba (2020), Covid-19 had a negative impact on the people, politics, and jobs in countries like the United States, Canada, and Mexico. Mexico was impacted when the United States banned trade exchanges between its borders and the United States. The authors observed that the Canadian government responded to the pandemic through the use of a Canada Emergency Response Benefit (CERB) funding for people that had stopped working due to the pandemic. The fund was about $500 weekly given for 16 weeks. The Canadian government also expanded its loan programs to small businesses. In the United States, the authors observe that the CARES Act provided a Paycheck Protection Program for small businesses. The total package was $3 trillion where $270 billion was given to qualified Americans. However, a significant amount of the money was given to people staying at home when the countries needed more people to work to boost the economy.
Finance
COVID-19 had a negative impact on different financial sectors that drive the country’s economy. Goodell (2020), analyzed the impact of COVID on financial markets, financing, and cost of capital. The study showed that the financial markets reacted in the way the market reacts to news of natural disasters like volcanos and earthquakes. The airline industry was the one that was most impacted as most of the airline travel came to a halt. The study also showed that the financial markets can recover but will experience spillover effects where the prices will take time before it reaches the previous highs. Additionally, the COVID-19 pandemic impacted financing, as there were changes in the cost of equity. The author observed that there is likely to be an increase in the country’s risk premiums, and the cost of equity will go up. Other areas of the finance that could be impacted negatively are pension planning, the role of government in protecting financial systems, and social trust.
The COVID-pandemic also impacted the United States economy and corporate finance. Ellul et al. (2020) observed that the economic cost of the pandemic was very severe. The study estimated that by the end of July 2020, the gross domestic product (GDP) in the second quarter of 2020 had fallen by 9.5% in the United States. Job postings in the United States had decreased by 40% when compared to the same month in 2019. The pandemic also impacted cash flows which negatively impacted the financial statement of large companies in North America. Most companies went through the pandemic by making use of external financing and acquiring credit from banks and using the financial markets. However, the study showed that the pandemic would affect how companies borrow as most companies went through a significant level of debt from the pandemic.
The negative of Covid-19 can also be studied by analyzing the impact on the incomes of different people. Hoehn-Velasco et al. (2020), examined the impact on the income of Mexican households and compared it to that of the United States. The first three months of the pandemic saw a decline in the income of most Mexicans by more than 30% and by almost 20 percent in the United States. The changes in income and employment had decreased by approximately 40% in the United States. The study further revealed that the bottom 25% of the income distribution experienced the largest employment reductions. Women in both countries were disproportionately affected as they expected a higher decline in service-sector jobs and manufacturing jobs. The study showed that the North American economies were impacted negatively as many people experienced a massive decline in their personal finance.
Figure 1
Unemployment Rate by Race, not Seasonally Adjusted, 2001 January to 2020 April
Note. Unemployment rate between January 2001 and April 2020 showing unemployment rates during recession. On April 2020, the unemployment rate was 16.6% for blacks, 18.2% for Latino, 13.7% for Asian, and 12.8% for whites. Reprinted from the impacts of COVID-19 on minority unemployment: First evidence from April 2020 CPS microdata, by Couch et al., 2020, Available at SSRN 3604814 . http://dx.doi.org/10.2139/ssrn.3604814 . Copyright SSRN.
Figure 2
Monthly Income and Log (Monthly Income +1) for the Quarters Before and After Covid-19 in Mexico
Note. Data on monthly income and log (monthly income +1) for men and women before and after covid-19. Reprinted from Has the COVID-19 recession been harder on women? evidence from employment and time use for men, women, and children in Mexico, by Hoehn-Velasco et al., 2020, Evidence from Employment and Time Use for Men, Women, and Children in Mexico , https://dx.doi.org/10.2139/ssrn.3741201 . Copyright Individual-level Data National Occupational Survey.
Figure 3
Unemployment Rate of Men and Women Between January and April 2020.
Note . The figure shows the Unemployment rate of men and women between January and April 2020. Reprinted from Disparate disruptions: Intersectional COVID-19 employment effects by age, gender, education, and race/ethnicity, by Moen et al., 2020, Work, ageing and retirement , 6 (4), 207-228, https://doi.org/10.1093/workar/waaa013 . Copyright Work, Ageing and Retirement.
Figure 4
Unemployment Rate for Self-employed Persons in Canada
Note. The data shows the unemployment rate for self-employed persons between 2016 and 2020. Covid-19 led to a sharp rise in unemployment. Reprinted from Short-Term Effect of COVID-19 on Self-Employed Workers in Canada by Beland et al., 2020, Canadian Public Policy , 46 (S1), S66-S81. https://doi.org/10.3138/cpp.2020-076 . Copyright by Canadian Public Policy.
References
Beland, L. P., Fakorede, O., & Mikola, D. (2020). Short-Term Effect of COVID-19 on Self-Employed Workers in Canada. Canadian Public Policy , 46 (S1), S66-S81. https://doi.org/10.3138/cpp.2020-076
Couch, K. A., Fairlie, R. W., & Xu, H. (2020). The impacts of COVID-19 on minority unemployment: First evidence from April 2020 CPS microdata. Available at SSRN 3604814 . http://dx.doi.org/10.2139/ssrn.3604814
Ellul, A., Erel, I., & Rajan, U. (2020). The COVID-19 Pandemic Crisis and Corporate Finance. Work, Aging and Retirement , 6(4), 207–228, https://doi.org/10.1093/workar/waaa013
Goodell, J. W. (2020). COVID-19 and finance: Agendas for future research. Finance Research Letters , 35 , 101512. https://dx.doi.org/10.1016%2Fj.frl.2020.101512
Hoehn-Velasco, L., Silverio-Murillo, A., Balmori de la Miyar, J. R., & Penglase, J. (2020). Has the COVID-19 Recession been Harder on Women? Evidence from Employment and Time Use for Men, Women, and Children in Mexico. Evidence from Employment and Time Use for Men, Women, and Children in Mexico . https://dx.doi.org/10.2139/ssrn.3741201
Korman, K., & Mujtaba, B. G. (2020). Corporate responses to covid 19 layoffs in north america and the role of human resources departments. Reports on Global Health Research . https://www.gavinpublishers.com/articles/review-article/Reports-on-Global-Health-Research/corporate-responses-to-covid-19-layoffs-in-north-america-and-the-role-of-human-resources-departments
Moen, P., Pedtke, J. H., & Flood, S. (2020). Disparate disruptions: Intersectional COVID-19 employment effects by age, gender, education, and race/ethnicity. Work, ageing and retirement , 6 (4), 207-228. https://doi.org/10.1093/workar/waaa013
