UC Berkeley study finds COVID-19 recession could lead to depression

Infographic showing unemployment claims in California by race
Connor Lin/Senior Staff

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With the federal government at a standstill on a stimulus package and the challenge of controlling the pandemic and establishing economic stability, the U.S. economy could spiral from a recession to a depression, according to a study by UC Berkeley’s Institute for Research on Labor and Employment.

Both California and the United States as a whole are struggling with record-breaking levels of unemployment, according to the study. Much of the economic outcomes California is facing, according to study co-author Sylvia Allegretto, are a result of COVID-19 transmission, testing, tracing and isolating protocol being handled “poorly.”

“Things will be much worse without adequate relief for workers and families,” Allegretto said in an email. “California and all states will be hard pressed to respond to COVID and the economic fallout without ample aid to the states from the U.S. Congress.”

The study focuses on trends in jobs, unemployment rates and unemployment insurance benefits as a result of the COVID-19 pandemic, according to an Institute for Research on Labor and Employment press release.

More than 2.6 million jobs in California were lost early in the pandemic in March and April, before initial reopenings resulted in 692,400 jobs gained in May and June, according to the study. This left California with an employment shortfall of about 11%, which is larger than the 8.3% gap at the peak of job losses during the Great Recession, according to the study.

“Shuttering businesses and sending workers home were requisite to successfully controlling the spread of the novel coronavirus,” Allegretto and co-author Bryce Liedtke said in the paper. “Future trends in virus transmission, consumer confidence, and public policy will largely determine when and how quickly affected businesses and their associated payrolls might rebound.”

Many workers of color, in particular, are struggling with income loss. The study reports that people of color are being disproportionately affected by unemployment. According to the study, 40.3% of all Asian workers in California filed for unemployment claims, with 35.1% of Hispanic workers and 49.5% of Black workers filing as well.

The paper adds that the federal government must provide “significant relief” for states to have the ability to balance their budgets and the COVID-19 recession. Without this relief, states will face “unprecedented challenges” in affording the costs of controlling the spread of the disease, according to the paper.

“The cost of not acting boldly to provide widespread economic security is unacceptable during a regular recession,” the paper states. “But this is not a regular recession and the failure of leadership from the top means this pandemic-led recession could turn into a depression.”

Audry Jeong is a research and ideas reporter. Contact her at [email protected] and follow her on Twitter at @audryjng_dc.