The Ripple Effects of Coronavirus-Related Lost Jobs and Wages

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This guide was written by Doug Milnes

Doug Milnes Doug Milnes is a CFA charterholder and head of marketing and communications at MoneyGeek.

With recent orders across the country to stay at home and curtail business, many workers are facing unemployment. According to the Department of Labor, unemployment insurance claims surged through March 14, particularly in states that have enacted more measures to stop the spread of COVID-19. Washington State, one of the harder-hit states, experienced a 100% increase in claims week over week. New claims numbers for the week ending on March 21 are expected to reveal unemployment numbers not seen since the last recession, as Goldman Sachs has released a forecast of over 2.2 million new unemployment claims.

How Industries Impact Each Other

When layoffs in one industry occur, they have a ripple effect on other industries when former employees no longer have wages to spend and employers no longer need to purchase as many supplies or invest in their businesses. As wages drop, spending slows; corporate profits dwindle and tax dollars drop, hurting public services and public service jobs.

Economists refer to this phenomenon as the employment multiplier. Economist Josh Bivens of the Economic Policy Institute (EPI) used data from the Bureau of Labor Statistics and the Bureau of Economic Analysis to calculate how job losses multiply through the economy. Different sectors of the economy have different multiplier effects based on how these jobs create wealth in the economy and how they link together with other industries.

Job loss multiplier effect by jobs

For every 100 real estate industry jobs created or lost, another 548 indirect jobs are created or lost. This can be suppliers to the industry, such as building material manufacturers and construction workers. The effect then ripples and has an impact on the businesses that these former job holders spend their money on (car dealerships, grocery stores and more).

With an increase in unemployment, remote work and self-quarantine across the country, many industries are beginning to feel the effects of social shifts and job losses. While the full economic impact of the coronavirus is yet to be realized, many businesses and individuals have already experienced losses. As businesses shutter because of the coronavirus, job losses compound across multiple industries.

A sign that says 'sorry, we're closed' on the door to a business.

New York Restaurant Closures

With New York City’s bars and restaurants ordered closed, many of the city’s 321,000 food and beverage workers are out of work. According to EPI’s analysis, for each 100 lost jobs in food and beverage, there will be 50 lost jobs that supply the industry. Suppliers to an industry are far-reaching, including laundry services for fresh linens, health inspectors, beer and liquor distributors — even paper goods factory workers due to lower demand for napkins.

Another 46 jobs are lost as restaurant workers tighten their belts and slash their own spending, which has a further ripple in consumer goods industries. Together, the supply side and the spending side of restaurant jobs results in 96 additional lost jobs in addition to 100 lost jobs in the food and beverage industries.

Airline Disruptions

Many airlines are experiencing extreme losses as travel grinds to a halt across the globe. With 96,000 employees, United Airlines has announced that without federal financial support, it will cut employee payroll to match the 60% reduction in flying anticipated in April. Other airlines are facing similar challenging employment decisions.

At this time, it’s unclear how many jobs will be lost; however, the airline industry creates 278 indirect jobs for every 100 jobs. That number includes 161 supplying jobs such as employees at the airline manufacturer Boeing, the jet fuel production team, as well as employees at the Federal Aviation Administration (FAA). It also includes 116 consumer-driven jobs from everyday consumer goods and services to hotel stays for pilots and cabin crews.

An empty baggage carousel at an airport.

The Ripple Effect Is Just Beginning

What may make this period of time so unique is the speed of disruption and the uncertainty of when it may end. If these job losses are anything more than temporary, they will likely ripple throughout the economy as lost jobs beget more lost jobs.

Doug Milnes is the head of marketing and communications at MoneyGeek. He spent more than a decade in corporate finance performing valuations for Duff and Phelps and financial planning and analysis for various companies, including OpenTable. He holds a master’s degree in predictive analytics (data science) from Northwestern University and is a CFA charter holder. Doug geeks out on building financial and predictive models and using data to make informed decisions.

Sources

Department of Labor, “https://www.dol.gov/ui/data.pdf” Accessed March, 24, 2020.

Economic Policy Institute, “Updated employment multipliers for the US economy” Accessed March 24, 2020.

Sutton, Ryan. “How NYC Restaurant Workers Are Getting Help So Far.” Accessed March 25, 2020.

Mohamed, Theron. “A jarring new chart shows America needs to immediately brace itself for historic unemployment.” Accessed March 25, 2020.

Koeing, David. “United Airlines warns of massive layoffs without ‘sufficient’ federal aid.” Accessed March 25, 2020.