Impact Could Cause Equivalent Of 195 Million Job Losses

Running head: ECONOMIC IMPACT OF COVID-19
Economic Impact of COVID-19
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ECONOMIC IMPACT OF COVID-19
Introduction
COVID-19 has taken the world in a storm in the last two months. The coronavirus started
spreading from Wuhan in China and very rapidly, this contagious virus has taken over not only
the first world’s developed economies, such as, Italy, Spain, and USA, but also on the
developing economies. World health organization (WHO) declared COVID-19 outbreak as
pandemic with severe implications on March 11, 2020. The virus outbreak not only is affecting
the demographic and health of the population of the countries, but it has far more terrible impact
on the global economy. To flatten the COVID-19 positive curve, the governments are taking
measures like lockdown and social distancing and that have been hitting the global economy
hard (World Health Organization 2020). For example, in the USA, domestic consumption and
expenditure has fallen drastically for the sectors like, shopping, transportation, health and beauty,
travel and entertainment and restaurants, although money is being spent on the grocery sector,
there is no business and income generation due to lockdown and stalling of all types of business,
unemployment has started to rise (The Economist 2020).
Figure 1: Impact of COVID-19 crisis on spending habits of Americans
(Source: The Economist 2020)
Due to mutual interdependence of all the economic sectors, hence, experts say that
impact of corona is similar to that of post-World War II or post 1930’s Great Depression. This
essay will elaborate severe economic impact of COVID-19 in the context of partial equilibrium
in the market, general equilibrium and policy analysis framework.

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ECONOMIC IMPACT OF COVID-19
S
S1
D
D1
W*
W1
W2
L*L1L2 Quantity of
labor
Wage
Fall in demand and
supply due to
coronavirus
pandemic
Discussion
Partial equilibrium analysis
To analyze the economic impact of the coronavirus outbreak, partial equilibrium analysis
will be conducted on the labour market. In the USA, 6.6 million people have registered for
unemployment in just one week due to the pandemic, with total unemployment rising to 16
million and payrolls are being reduced (Rushe and Sainato 2020). Lack of spending and closure
of all types of transportation and international trade have reduced the demand for good and
services and that for the huge workforce across the world, contributing in the rising
unemployment. Labour is one of the four fundamental factors of production an instability in the
labor market leads to rise in labor supply and fall in demand, pushing the wages down in the
market. The labour intensive industries like retail sector, manufacturing, hospitality, IT, FMCG,
restaurants, etc. have been severely affected by the pandemic, as the services are stalled and
demand for labour has fallen (Rios 2020). On the other hand, labor shortage in the industries has
been created due to quarantine measures and a drop in all types of economic activities, and it is
pushing the labor cost higher, which is in turn pushing the companies to opt for further cost
cutting (ILOSTAT 2020). Labour supply chain and global sourcing are disrupted. There has been
a surge in human resource adjustment plans, temporary layoffs in various industries, reduction in
the working hours, and pay-cuts (International Labour Organization 2020). Hence, in a circular
way, the laborers are facing consequent loss of income. As per ILO estimates, the overall fall in
labor income may reach the range between 860 billion USD and 3440 billion USD (Rios 2020).
Figure 2: Impact of COVID-19 on labour market and wage
(Created by author)