The outbreak of the coronavirus pandemic and measures to contain the pandemic caused economic output to collapse by probably more than 10 percent in the spring, causing the unemployment rate to skyrocket. Almost forty million employees have lost their jobs, at least temporarily. The unemployment rate might have risen to around 20 percent in May.
The American labor market was still in good shape in February before the pandemic. In addition to a low unemployment rate of three and a half percent, wages have finally increased somewhat more than in the past – especially for the low-skilled. Previously, economic performance had developed solidly since the 2008 financial crisis, but there had not been a strong boom with wages rising significantly across the board.
With the increasing relaxation of measures to contain the pandemic, many people are now likely to return to their jobs. However, many of the job losses will persist for a long time. Companies in different sectors are likely to struggle to survive. And other companies could now invest even more in automation.
I do not expect a rapid reduction in the unemployment rate; unemployment will remain high and only gradually decrease. The quota is likely to peak in May at around 20 percent. In the autumn of the current year, the rate should then drop below 15 percent. A further decline to below 10 percent is then expected in the first half of 2021. But only in the summer of 2022 will the unemployment rate again be in a range of four to six percent, which could be described as “normal”. Against this background, wage developments are likely to remain subdued for the coming years. Needless to say, however, that any economic assessments and forecasts are associated with a high degree of uncertainty. There is, for instance, the risk of a second wave of the pandemic. In addition, global tensions between countries could increase.
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