n March 11, 2020, the World Health Organization (WHO) declared the COVID-19 crisis a global pandemic. In just a few weeks, the pandemic has swept the globe, affecting every country, market, and person. The coronavirus has already had astronomical impacts on daily routines, healthcare, and the economic well-being of the United States, and the world at large. The economic ramifications of COVID-19 have already begun to take shape; however, they are only beginning. These negative impacts will only get worse for young people entering the workforce amid this crisis—members of Generation Z.
While economists are focusing on the immediate issues, it is crucial to investigate the long-term, generational effects of the pandemic. It is more critical now than ever, to investigate the economic complications of this event on Generation Z as they continue to navigate this time of economic dismay. To understand the economics of this formative event, it is crucial to consider and analyze two economic concepts: recessions and unemployment.
Recessions are periods in which household incomes decline while unemployment rises. As higher rates of unemployment are cyclical, recessions come and go over time. During periods of recession, the long-run aggregate supply of a country does not change. However, the short-run aggregate supply curve may shift to the left, causing a decrease in overall output. The short-run aggregate demand may shift to the left, too, as households consume less. In some recessions, both curves shift to the left. This shift leads to a decrease in both price level and GDP and, in turn, results in financial turmoil. Many analysts predict a major, global recession due to the COVID-19 pandemic.
Graduating and entering the workforce during a recession has lifelong negative economic impacts. Generation Z includes anyone born from 1997 until about 2007. The first Gen Z students to enter the workforce was the class of 2019—last year’s graduating class. In order to make educated assumptions and analysis, we must look back to recent historical precedence: the Great Recession of 2008. Millennials that graduated during the 2008 recession are still experiencing detriments to the financial crisis. These millennials earn 36 percent less a year, on average than their peers who graduated pre-recession. Three years after graduation, many mid-Great Recession graduates had yet to secure full-time jobs. Unfortunately, we can assume the same will be the same, if not worse, for Generation Zers entering the workforce. One Business Insider reporter wrote, “[Gen Z] could find themselves on the same financial path as older millennials, who are expected to be the first generation that is worse off financially than their parents.”
As mentioned previously, recessions include high rates of unemployment. Unemployment is the number of people who are not employed at the current time and are actively looking for employment. The Bureau of Labor Statistics measures unemployment by dividing the number of people unemployed at any given moment by the number of people in the labor force. There is a natural rate of unemployment. The natural rate fluctuates in cycles, getting slightly higher or lower. There are two main types of unemployment: frictional and structure, the former being much less worrisome than the latter. The case of the surge of unemployment during the current pandemic is an example of frictional unemployment.
During this crucial time for young people to become employed, unemployment in America is at a catastrophic high. By March 21, “nearly 3.3 million people filed new jobless claims.” That is 1.6 million more unemployed people in just two weeks. With unemployment skyrocketing, newly graduated Gen Zers are at a disproportionate disadvantage when applying for jobs. Even with the increasing prospect of remote work, Gen Zers do not stand a chance. As Business Insider reminds us, “once people begin to enter and reenter the workforce, many [firms] will probably focus on paying down debt or boosting savings, rather than discretionary spending. This decreased spending will hurt numerous retailers, many of whom employ Gen Zers early in their careers.” Members of Generation Z are not only less likely to be employed after graduation in the status quo, but they are also uniquely disadvantaged when it comes to retaining their current jobs. As Harry Holzer, a professor at Georgetown University, stated, “I worry about the younger guys more… they are more likely to get laid off.” Unfortunately, even the already hired members of Generation Z will be inordinately negatively affected by this increase in unemployment.
Figure 1. This figure is a conceptual diagram used to explain the effects of an increase in unemployment caused by the COVID-19 pandemic.
Figure 1 (pictured above) represents the effects of unemployment on the current labor demand curve in the United States. This model represents what happens when the demand for labor decreases. The supply of labor, however, does not change. Therefore, there is a gap between supply and demand in the U.S. labor market. This lack of equilibrium creates a significant issue for the labor market. Figure 1 illustrates what will happen to employment as a result of the COVID-19 pandemic recession. Based on the evidence presented, members of Generation Z are the most likely to be a part of the unemployed population.
While, in theory, these impacts could be mitigated, the evidence overwhelmingly points to economic hardship for Generation Z as a result of the pandemic. Therefore, we must support members of Generation Z as they navigate the madness of this recession and their expected unemployment. The government should provide young adults with stimulus package opportunities. In the status quo, many members of Gen Z are excluded from stimulus checks as they still qualify as their parents’ dependents. Without taking any steps to help Gen Z, they will be the biggest losers. As a country, we need to be supporting and providing relief for young adults who will be hit hardest during and after our return to “a new normal life.” We know COVID-19 will be a defining moment in history, but it should not define Generation Z’s economic future.