While he is hopeful the US is on the brink of recovery from the Covid crisis, Tom Barkin, president of the Federal Reserve Bank of Richmond, Virginia, said concerns remain about long-term economic “scarring” caused by the pandemic.
“Vaccines are rolling out, and case rates and hospitalizations are falling,” Barkin said. “Excess savings and fiscal stimulus should help fund pent-up demand from consumers freed by vaccines and warmer weather.”
But scarring is a worry, he said during a speech delivered today at the National Association for Business Economics’ Economic Policy Conference.
Scarring refers to how persistently workers are impacted by an economic downturn, Barkin said. For example, workers who graduate from school during a recession may start at lower wages that those who began their careers during an expansion — depressing the recession grads’ wages for years.
The scars, while not always permanent, can take a long time to heal.
“After the Great Recession, in regions that saw the biggest drop in housing prices, employment remained at 2009 trough levels as late as 2018 and only recovered because unemployed workers moved to seek opportunities elsewhere,” he said.
Some forces in the Covid crisis might cause scars going forward.
- “Covid-19 has hit primary caregivers particularly hard,” Barkin said. “School and childcare closures have put pressure on parents. The data suggest that this pressure initially fell disproportionately on women. … If parents who left the workforce don’t return, that would have long-term negative implications for our growth potential.”
- Also affected could be students, some of whom had difficulty accessing remote learning.
- The pandemic increased automation, which could impact low-skill jobs.
- The crisis could also hit service-sector employees in downtown areas if more workers remain in the suburbs working from home going forward.
The full speech is online.