Colorado and the COVID-19 Recession
By Jeremy Albright, research manager
On March 5, the first reported case of COVID-19 was reported in Colorado. By that time, the disease had already wreaked havoc on economies and health systems in China, Iran, and Italy. Less than a week later, Governor Jared Polis declared an official state of emergency and began announcing a series of sweeping public health policies designed to curb the spread of the virus. In addition to limiting public gatherings to 10 people or fewer, Polis ordered everything from the state’s ski industry to public dining in bars and restaurants to close. By March 25, Polis had issued a statewide “stay at home” order which, among other restrictions, limited business operations to those deemed essential.
While public health officials across the world call these steps necessary to save millions of lives, they come at a massive cost to the livelihoods of workers and business owners. And though the true effects of this situation will not be known for some time, recently released data leads economists to believe the US is already in a recession, and the continuation of the outbreak is expected to have unprecedented economic consequences. As we wait for the full picture of the COVID-19 containment efforts and the breadth of the subsequent recession to become clearer, the data from past recessions can serve as a benchmark for comparisons to the one that lies ahead.
During a typical recession, economic growth slows because consumers take home less in their paychecks (or receive only a partial wage replacement through unemployment insurance) and subsequently spend less money on goods and services. In turn, businesses require less labor to produce products or provide services, and often lay workers off to cut costs associated with decreases in demand.
While economy-wide recessions can result in all businesses receiving less revenue, and workers losing their jobs as a result, some industries are more prone to changes in employment than others. Industries like construction, luxury goods, leisure services, and hospitality often experience the largest drop in sales. For example, US industries as a whole experienced a 5.7 percent drop in employment during the Great Recession, but employment in the construction sector decreased by 21.4 percent — a substantially sharper decline than any other industry. Likewise, trade and transportation experienced a 7.1 percent decrease in employment. In Colorado, workers in the sales and personal care and service industries were much more likely to lose their jobs than the average worker in those industries.
Past data show the scale of a recession may vary, and which workers and industries are most affected depend on the economic climate and the root of reduced economic behavior. The chart below shows how three key sectors of Colorado employment faired during and after the Great Recession and subsequent recovery:
In the immediate wake of the COVID-19 outbreak, workers in Colorado and across the country have filed a staggering number of unemployment claims as virus-related layoffs and business closures mount. On March 20, the number of new unemployment claims was estimated to hit more than 2 million nationwide by March 26. In fact, that estimate proved to be roughly more than 1 million claims too low, according to new numbers from the US Department of Labor. In Colorado, nearly 61,000 workers filed new unemployment claims from March 21-26, nearly five times the increase from March 23-25, following a boost in capacity by the Colorado Department of Labor and Employment to process claims after the system was overloaded in the initial wave of layoffs. Workers in the leisure, hospitality, retail, and food service industries represent the vast majority of that first wave of jobs lost due to efforts to curb the spread of the virus. After the broader stay-at-home directive from Gov. Polis, it’s possible the next wave of claims will come from a broader group of workers.
Given the unprecedented surge in unemployment claims, many predict the effect of the outbreak-induced recession on Colorado’s leisure, hospitality, and retail sectors will be larger than effects of the 2008 recession. The Economic Policy Institute (EPI) estimates 26.5 percent of Colorado workers are employed in these industries, slightly higher than the nationwide average of 25 percent.
Our analysis of labor data comparing 2008 to 2018 estimates food service workers will likely make up a significant number of jobs lost. Jobs in that industry make up a sizable share of the economy, totaling over 9% of all employment in the Denver-Aurora-Lakewood metropolitan statistical area in 2018. Of these food service workers, waitstaff and bartenders — the vast majority of whom are currently unable to work — represent more than 35 percent of food service workers in the area.
Because workers in the leisure, hospitality, and food service industries are often most likely to lose their jobs during any recession, and because those jobs were already among the fastest-growing occupations in Colorado, job losses will almost certainly be unlike any in modern history. Overall, EPI estimates Colorado will lose around 261,000 jobs statewide, or an 11.2 percent drop in total employment.
Whether the coming recession is v-shaped or u-shaped (i.e. a sharp economic contraction followed by an equally sharp uptick in growth, or a sharp contraction followed by a more prolonged recovery) is dependent on a number of factors, some of which we have more control over than others. It will be difficult to control the extent to which we are able to contain the spread of the virus through social distancing measures that require millions of people to adhere to drastic changes in our way of life. However, changes to laws and policies at the federal, state, and local level are well within our control and offer solutions that could help ensure a quicker recovery — though achieving them may be more difficult for political and other reasons.
As of late March, little is certain about the COVID-19 outbreak and the recession it is still spawning. One thing, however, is clear: there is a massive, ongoing disruption in our way of life. Large swaths of workers are losing their jobs, either due to efforts to curb the spread of the coronavirus or extreme reductions in demand related to those efforts, and the economy is reeling.
All signs point to us still being in the early stages of an unfolding event, so in addition to lacking a full picture of the overall economic impact, we also lack critical information about how the impact of this disruption will be distributed across Coloradans of different races and income levels. Historical data show that pandemics tend to disproportionately affect those who work jobs that pay low wages, older people, and those who lack health insurance. Because of systemic bias, people of color tend to be overrepresented in the categories of those most affected. We must use data and common sense to craft recovery policies that help those most affected and most in need.
With the crisis deepening seemingly by the hour, it will be critical for Congress, state lawmakers, and other policymakers to make sure the costs of recovering are spread in a fair and just way. If we meet this challenge with the same unprecedented speed and tenacity shown by the virus, Colorado and the country can emerge with a more sustainable and more equitable economy.
