The economic crisis brought by the COVID-19 virus can have serious negative consequences not only in the short, but also in the long term. That is, we will be recovering from the pandemic for a long time yet; the long-term consequences will manifest themselves in different areas of our lives. Economists call this phenomenon the “scarring effect”. How to survive in a new reality and protect yourself as much as possible?
According to Gita Gopinath (IMF Chief Economist), the COVID-19 crisis is the worst in history since the Great Depression. In her opinion, the economic decline that awaits us may be comparable to the consequences of the Great Depression, but there is hope that the recession will not be so long. It is important to note that all crises in history were similar: they were primarily associated with the fact that demand was falling, and the state was taking measures to stimulate the economy. Now the situation is the opposite: states had to consciously reduce economic activity so that the virus would not spread. And this situation is unique: it never happened that countries deliberately limit their own economic activity.
Here are a few long-term negative consequences of the COVID-19 crisis that are predicted by experts:
- Unemployment. Due to the temporary shutdown of the largest economic sectors, a huge number of people were left unemployed (in many countries this number was 20-30% of the total labor force). As a result, there is an increase in unemployment, and in many European countries open unemployment is simply limited by the fact that employers send employees on a leave of absence. And this will last for a long time.
- Deterioration of human capital. The long-term effect of unemployment is the deterioration of human capital. This means that people without work will lose their professional skills, they will have difficulty finding a job in the future, they will face a reduction in their earnings, and their mental health may deteriorate (after all, there is a proven relationship between unemployment and human well-being).
- Decrease in specific human capital. This means that when their job is lost, people are economically harmed because many people are productive in a particular workplace, and when applying for an alternative job, they may be less successful and useful, and earn less. For example, in Germany, the USA, and Portugal, after mandatory retirement and change of job, most of the people’s income decreases by 30-50% (during the year when the dismissal takes place).
What can be concluded from the above? That after the end of quarantine we will continue to "rake" the consequences of the pandemic for a long time, many people will face the problem of employment, earn less or not be able to find a job.
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