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What a magnetized iron screwdriver can teach us about the post-COVID economy
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There’s a scientific demonstration you may have seen in grade school, in which an iron nail or screwdriver is transformed into a temporary magnet by striking it repeatedly with an actual magnet. It demonstrates “hysteresis,” a term meaning “delayed” or “lagging behind” in both physics and economics. We won’t delve deeply into the science of why that works here, but the concept itself is important to understanding the economic damage caused by COVID-19.
“If you’re holding a piece of iron, the piece of iron itself is not likely to be magnetized,” said Elizabeth Green, a condensed-matter physicist at the National High Magnetic Field Laboratory in Tallahassee, Florida. “But when we do start applying an external parameter, in this case, an external magnetic field, we can start magnetizing this piece of iron, and if we remove that external field, the iron will still remain magnetized.”
It shows how once a piece of iron has been magnetized by something external, it will remain magnetized even when the thing that caused the change is gone. “Nature is lazy,” Green said. “It likes to stay in a particular state, it does not like change. So when we change the direction of this external field, what happens is everything lags behind.”
That idea holds true in physics and economics alike. “Hysteresis says, you have a big shock, like a recession, and then you fix what caused the recession … but the workers are still affected,” said Danny Yagan, an associate professor of economics at the University of California, Berkeley, who has studied employment hysteresis. After an economic shock, Yagan said, “people are worried and businesses are worried that the jobs and customers won’t be there, and so they dip [their] toes back into the water slowly.”
In October, the U.S. economy still had about 10 million fewer jobs than it did in February, before the pandemic hit. By the time vaccines get to everyone, it’s likely that there will be people who have been out of work for a year, drawing down their savings to pay for food and rent.
“So think of a restaurant coming out of COVID, and it’s deciding how much of their waitstaff to rehire,” said Yagan. “The restaurant owner might say, there are millions of families that are dealing with layoffs right now. They’ve dipped into their savings, they’ve drawn them down to pay for rent, food … and now that they’re getting back to work, they’re not spending in a restaurant.”
Because of that, the restaurant owner might choose to hire back some, but not all, of the waitstaff. Then, as the economy rebounds further, more people will start spending at restaurants again, which then will encourage the restaurant owner to hire more waitstaff back. “And then those waitstaff go and spend all that money on other restaurants, and then you get back in this virtuous cycle. But it just doesn’t happen instantaneously,” Yagan said.
Remember the iron screwdriver. Even after the magnet is gone, the effect lingers. “In economics,” Yagan said, “you have a recession. You know, subprime mortgages explode or COVID-19 shuts down the economy. Then once we fix subprime mortgages or we solve COVID, the economic effect lingers.”
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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