The world economy has been in a boom following recovery from the 2008 recession. This will now change. The expected global recession of 2020, like that of 2008, was foreseen to result from a decline in global demand of manufactured goods and raw materials.
No one expected it to be a pandemic that would cause quarantine measures contributing to a sharp fall in the market, lead to supply-chain disruptions and force a global recession. Dr Richard Grassman from Stockholm University tells AppJobs Institute:
We would have had a recession sooner or later even without the virus, because of the long expansion we’ve seen since the last post-financial crisis recession set in. But now we are seeing the beginning of a recession triggered by the COVID-19 pandemic. -Dr. Rickard Grassman.
The reaction of global markets during the corona outbreak points to the difficulties that will arise following the global post-corona economy. Chinese exports shrinking by 17.2%, the stock market falling 23% below the peak of the past 12 months, and the OECD cutting its global growth expectation by 0.5% are all warnings that a large part of the world’s economy will be impaired in the coming months.
Doctor David Atkin, a Professor of Economics from MIT, points out to AppJobs Institute, the potential severity of disrupted supply chains and draws a parallel between the 2011 earthquake in Japan and the current situation.
We now live in an age of global supply chains where the stages of production are split across the world. So to understand the potential impacts we need recent studies. We do know something about how Japan’s earthquake a few years ago upset global supply chains. With Coronavirus we have many many countries affected, rather than one key producer like Japan, so the effects may be quite different (and more severe) this time. -Dr. David Atkin.
The economy and the labor market will not revert to its former state once primary effects of the coronavirus have worn off. In the aftermath of this recession, workers, companies and policy-makers will seek alternative measures to combat unemployment and financial instability.
This is what the labor market will look like.’
Gig economy for the unemployed
One of the outcomes of the 2008 economic recession was the gig economy. The unemployment rate, having reached its peak in December 2009 with 10%, compared to 5% in December 2007 in the U.S., paved the way for gig startups to enter the then-weakened labor market.
Taking advantage of the need for temporary and quick jobs, side hustle jobs like Uber became a household term for those that now faced financial difficulty.
A similar trend is expected again, 12 years later. An internal paper published by the World Bank in 2006 estimated that a flu pandemic could cost the global GDP -4.8% compared to -1.7% in 2009. As certain industries start laying off employees, it is becoming more clear that the contribution of unemployment to the global GDP will be one of the most detrimental consequences of COVID-19.
The economic recession post COVID-19 is likely to drive the unemployed to gig-work again, in an effort to find easy and quick ways to make money.
The unemployed are not the only ones that can benefit from short-term jobs that the gig economy brings. Increased uncertainty and instability will also prompt full-time employees to look for alternative ways to supplement their income through side hustles.
Remote work
As heavy quarantines drive more employees to work from home, even more traditional companies’ approach to remote work has started to change. The sudden adoption of remote work policies is challenging us to rethink the way we work and to question how we can add value to our businesses remotely. The current situation is also driving companies to make remote work more accessible for later when the economy recovers from the pandemic.
These changes will contribute to an accelerated development of the gig economy, given that remote work is an inarguable aspect of the future of work. There is also a transaction cost benefit to becoming more remote both for workers and companies, as Alok Alström, CEO of AppJobs brings up.
When companies start adopting remote work processes, it inevitably decreases the transaction cost for both workers and companies to switch to remote work, since the physical bond is broken. This makes the threshold for both companies and workers to take a step further into remote on-demand work force to be even smaller. – Alok Alström
Gig economy: cardioversion for the economy?
Financial recovery will be one of the biggest challenges for businesses in our post COVID-19 world. Initiatives to jump-start the economy, on the other hand, should be incentivized for industries like the gig economy where employment is both a leading objective and a sizable outcome.
Comparing startup ecosystems in the US and Sweden, Alana Semuels from the Atlantic suggests that one of the contributing factors to Swedish economy’s fast growth rate is the underlying incentives that allow Swedish startups to thrive.
For the global economy to restore its growth, it is no doubt that supporting traditional businesses in their recovery will boost employment. On the other hand, it is crucial for the state to incentivize and invest in new and existing startups to contribute to an even faster economic growth.
The co-founder of The Worldwide Supply Chain Federation, Brian Aoaeh states the importance of startups like Uber that force us to rethink and reinvent how supply chains function in the world.
Given the role of disrupted supply chains in the likely financial recession, it is more critical now than ever to promote supply chain innovation to sustain economic growth. Thus, app-based job platforms that scale fast will contribute extensively to global recovery.
Dr. Richard Grassman also reaffirms that the economy will depend on the restoration of supply chain cycles during recovery.
“We should expect a slow climb in recession territory for about a year until supply chains and capital markets are fully back in business.”
Contractors for the government
Gig companies have come under scrutiny for exposing their workers to health risks, as many cannot take part in social distancing and have to keep working to make ends meet.
Although the demand for ridesharing services has decreased, food delivery is booming thanks to features such as “no-contact delivery” or “leave at my door” to avoid personal contact.
As an anonymous Lyft driver on AppJobs.com writes:
“Lyft is working fine but with the Coronavirus impact, I anticipate a severe decline in passenger transportation and a large increase in delivery services.”
On the other hand, delivery drivers and grocery shoppers working with companies like Instacart have received praise for their heroism and willingness to help those that cannot leave their homes. Also called first responders, their courage is a catalyst to make the media, governments and the public reconsider their views on the gig economy.
Furthermore, it has been reported that the British prime minister’s chief advisor Dominic Cummings has been in talks with food delivery companies to help those in isolation. This might be telling of how the attitude on gig workers is likely to change in the aftermath of the COVID-19 crisis.
Conclusion
There is no denying that the COVID-19 pandemic has already disrupted the lives of many. What’s worse, it is hard to see what social and economic challenges await us in the near future. Most of us find it difficult to see beyond the current panic that has made us hoard toilet paper and pasta and left us confined to our homes.
The fluctuation in supply chains and the fall in the stock market are indeed reminiscent of the 2008 recession, and even the Japan earthquake in 2011. However, whether the current effects of COVID-19 would eventually lead to a global crash is up for debate.
Dr Liang Che-Yuan from Uppsala University agrees that economic recession is very likely, however states that the effects will be small and long-run. When it comes to employment, only time will show how the labor market will shape up, and if alternative economic models such as the gig economy are ready to take on the challenge — the challenge of resuscitating the virus-ridden economy.