Economy

Understanding the economic cost of 2020 pandemic policy

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The economic shock from the coronavirus pandemic of 2020, exacerbated by the response of many state governors, is just beginning to be understood. As public health officials fixated on a single pathogen, policies enacted to slow transmission of SARS-CoV-2, the coronavirus that causes COVID-19, have inflicted their own damage on society without effectively mitigating the pandemic. These harms will be felt for many years, not merely in economic terms, but to the overall health and happiness of the general public

How can we determine the full extent of lost potential and growth over the course of 2020? How can we know what of the damage was caused by state action versus the pandemic, or fear of the pandemic? While Mills administration officials have contributed their fair share to Mainers’ fear and panic this year, preliminary data can illuminate some of the effects of their heavy-handed policymaking.

In a forthcoming report, Maine Policy analyzes the impact this year has had on the state’s economy, labor force, and how this should affect the next biennial budget negotiations. Although state forecasters effectively halved their budget shortfall estimate from its height in August, labor force predictions seem as dire as ever. As of November, the Maine Consensus Economic Forecasting Commission (CEFC) projects that employment will not reach 2019 levels at least until after 2025, where they predict it will effectively flatten at 0.1% yearly growth.

It took the Maine workforce nearly 10 years to recover from the Great Recession. With a population that does not look much different, this recovery could take at least that long.

In April 2020, the first month after the unprecedented state-mandated shutdowns of “nonessential” business and travel in response to the spread of COVID-19, nearly 1-in-10 Maine workers applied for unemployment benefits. This figure was even higher than the 8.3% unemployed at the peak of the Great Recession in 2008. More than 16% of the number of workers employed in January 2020 were not by April. As of November, more than 50,000 Maine workers have left the labor force and not yet returned, about 8% of January levels. A recent slowdown in jobs numbers, noted by November’s tally of 500 lost jobs, could mean that recovery could be even more elusive than current estimates suggest.

Yelp estimated in September that 60% of U.S. small businesses which closed by the end of August would not reopen, a national total likely exceeding 100,000. Even though many jobs have recovered since the economy bottomed out in April, a June study suggested that most (60%) of those losses were because of heavy-handed state action, not the virus itself.

As seen in the Yelp data, business closures slowed significantly in the early summer but began to climb again in July, with more permanent closures among them. Could this be because the continuation of pandemic-related restrictions on businesses throughout the summer meant that fewer businesses could hang on into the fall? One can only speculate, as similar state-level data is not yet available, but it is likely that the Maine economy mirrored this national trend, especially considering the importance of the summer season for the state’s tourism industry.

Accounting for 9.4% of total employment, Maine is more dependent on tourism than its more economically-diverse regional neighbors: New York, New Jersey, Massachusetts, and New Hampshire. Over 60,000 Mainers were employed in hospitality and tourism in the second quarter of 2019, the beginning of the summer season. Due to the pandemic and related shutdowns, the industry, by November 2020, had lost nearly 20,000 jobs. This is a rosier picture than in June, when the economy had shed more than 35,000 tourism jobs. These losses still account for 40% of total jobs lost in Maine over 2020. Due to this devastating confluence of factors, in addition to persistent demographic challenges, Maine’s tourism industry is poised for a huge loss when all of 2020 is recorded.

Small businesses, those with 500 or fewer employees, make up over 99% of the Maine economy and employ over 56% of the total workforce. In 2016, the US Census Bureau estimated that 78.7% of workers in Maine’s “accomodation and food service” industry were employed by these small firms. Those classified as “accomodation and food service,” “arts, entertainment, and recreation,” or “retail trade” made up just over 28% of Maine businesses in 2016. More than 59% of these are small businesses. 

The downstream effects of the tourism industry on the broader Maine economy cannot be overstated. The Maine Office of Tourism (MOT) estimates that 1 in every 6 jobs is linked to tourism, contributing over $2.5 billion in income to Maine households and over $610 million in tax revenue for state and local governments. At $6.2 billion per year, tourism makes up more than 10% of the state’s total economic output.

The decimation of Maine small businesses this year will affect the lives of many thousands of Maine workers. The next budget must realize this fact and do more to encourage private-sector investment and job creation. Government may only spend that which it has taken from the people who create wealth and value for others. In order to move the state on a path of sustainability, economic growth must be driven by industry, not by government.

About Nick Murray

Nick Murray, of Cornish, currently serves as Policy Analyst with Maine Policy Institute, writing, researching, and bringing Mainers together over the issues facing the state. Previously, he served as Outreach Coordinator, planning events to spread the word about Maine Policy's work to new audiences around Maine.

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