Unemployment and hardship can also lead to demoralization, depression, and other psychological traumas, lowering affected individuals’ productivity and attractiveness to employers. We saw this in the 1930s, not just in declining rates of labor force participation but also in rising rates of suicide and falling rates of marriage. Here, too, one worries especially about the US, given its relatively limited safety net, its opioid crisis, and its “deaths of despair.”
Many of these negative consequences are most prevalent when unemployment is recurrent or extended. If this downturn turns out to be as short as it is sharp, one can hope that the loss of human capital, the resulting damage to the economy’s productive capacity, and the pain and suffering that come with them will be limited.
The length of the downturn will depend above all on our success at containing the coronavirus and mitigating its effects. And that success will hinge, in turn, on our cohesiveness as a society and on the quality of our leadership. For Americans, that is not a very hopeful note to end on.
Barry Eichengreen is professor of economics at the University of California, Berkeley; Pitt Professor of American History and Institutions at the University of Cambridge; and a former senior policy advisor at the International Monetary Fund. His latest book is "Hall of Mirrors: The Great Depression, the Great Recession, and the Uses – and Misuses – of History."