Reopening California and What It Means for the Economy

The COVID-19 pandemic has been devastating to the economies of several countries across the world and states here at home. Slowly but surely, however, we are recovering, and fully reopening California is even starting to be discussed.

Make no mistake, though, this will be a long process. The economic downturn brought about by the emergence of this pandemic will not be reversed as soon as California fully reopens.

Still, this is as good a time as any to start learning about how big the impact of the pandemic truly has been on the state’s economy and how things will look as we continue to move forward.

The Economic Ramifications of the COVID-19 Lockdown

Before we discuss anything else, let’s first take the time to assess the real economic impact of this pandemic and the lockdown it needed.

Obviously, final numbers remain unavailable as we are still in the middle of dealing with this crisis, but even the earlier projections were not particularly optimistic.

In an online forum held back in April, economists for UC Berkeley analyzed the possible ramifications of the pandemic for the state of California. They specifically honed in on how the current crisis may affect the state’s tax revenues.

The economists said that the state could lose somewhere between $20 to $50 billion in tax revenues due to this pandemic. That’s a lot of money that could suddenly go missing because this pandemic, but that is still not the most concerning effect that COVID-19 may have on California households.

For many, losing their job is the greater threat that they need to deal with.

The Growing Problem of Unemployment

With so many businesses and industries left utterly devastated by this pandemic, it should come as no surprise that many people across the state of California have lost their jobs.

This article from Cal Matters provides some insight into how many people have become unemployed as a result of the pandemic.

Cal Matters cited unemployment statistics from the second week of March to understand where things stood right around the start of the coronavirus-induced lockdown. Back then, there were 58,208 applications for unemployment tallied by the state.

Of course, that 58,208 figure does not fully illustrate how many people lost their jobs or even had their hours at work reduced. Keep in mind that this was the time right around when the coronavirus was still starting to take hold.

The unemployment numbers have only grown since then.

It’s also highly likely that things could still get worse from here. Citing data provided by forecasters at the UCLA Anderson School of Management, that same article from Cal Matters indicates that unemployment rates could skyrocket over the coming months.

The projections indicate that the unemployment rate in the state of California could balloon to 6.1 percent in July and possibly reach 6.3 percent by October. To put those projections into a better perspective, it’s worth remembering that the unemployment rate in California stood at 3.7 percent back in October of last year.

The Industries Hit Hardest by the COVID-19 Pandemic

The pandemic is not affecting all sectors of the economy equally. Some are even experiencing a boom period of sorts, with online stores, supermarkets, and logistics among the most notable examples.

However, several other industries are in bad shape in the wake of the lockdowns and shelter-in-place orders.

Per this article from the Public Policy Institute of California (PPIC), the industries deemed “at risk” due to the coronavirus pandemic are accommodations, administrative and support services, agriculture, arts, entertainment, food service, recreation, mining and oil/gas extraction, transportation, and warehousing.

These industries will suffer due to a severe drop in demand as well as other changes brought about by the current public health crisis.

Writing down those industries does not do justice to how important they are to California’s economy and the wellbeing and employment of many residents.

The PPIC points out that those industries collectively employ an estimated 3.8 million workers. That’s a number that has certainly gone down significantly in the months since the start of the lockdowns.

If those numbers weren’t troubling enough, it’s worth taking the time to remember that many of the people employed in those industries were already struggling to begin with. The PPIC estimates that somewhere around 19 percent of the workers in those “at risk” industries were poor even before the start of the pandemic, with an added 22 percent to be barely above the poverty line.

Focusing on the hotel and restaurant industries reveals that the poverty rate for workers in those sectors reaches up to 24 percent.

To put it simply, a significant percentage of workers in those “at risk” industries were already in bad shape, to begin with. One can only imagine how bad things have gotten during this time.

The Long-Term Economic Effects of the COVID-19 Pandemic

Since we are still in this pandemic, it can be hard for us to realize this is not going to end even when they create a vaccine. Even if the constant threat to our health stops with the vaccine, there’s still the economic fallout that we will sort through, and that will not be an easy task.

The jobs lost because of COVID-19 are not guaranteed to come back.

Several bars and restaurants have shut their doors for good.

Mercury News highlights some of the notable establishments that have closed, and these include Clarke’s Charcoal Broiler, The Saddle Rack, and The Stud, businesses that have been serving Californians for decades.

The enactment of a so-called “new normal” will not be enough to resurrect those establishments, and even a complete return to normalcy will not give those employees their old jobs back. For those workers, finding a way to make it through this pandemic is not going to be enough because they will still need to worry about how they will put food on the table in the months and possibly even years ahead.

Workers for “at risk” establishments that have not closed yet may not return to their jobs.

UCLA Anderson School of Management forecast director Jerry Nickelsburg indicated that the downturn caused by COVID-19 could lead to certain trends taking hold faster in some affected industries. Nicklesburg specifically highlighted brick-and-mortar stores as casualties of the economic slowdown as those were already in decline even before the onset of the pandemic.

Looking further into the future, economists at UC Davis predict that it could take several decades before things can return to normal. After analyzing economic patterns following previous pandemics, they found that people were more hesitant to spend. Instead, more people wanted to save their money to shield themselves from future problems or recoup whatever wealth they may have lost.

The natural rate of interest following previous pandemics also declined for a while. It took about forty years before the natural rate of interest returned to the path it would have taken had the pandemic not happened.

Of course, it’s important to point out here that the economic landscape of the world is different in 2020 than it was at the time of other outbreaks.

As with several other aspects of COVID-19, it may be a while before we can get a full sense of its real impact on the economy. In the meantime, some parts of the country are trying to re-establish a new kind of normal while the wait for a coronavirus vaccine continues. That’s why reopening California is an important matter to discuss right now.

What Does Reopening California Entail?

Industries based in California did not fully close down. Even during the worst stretches of the past few months, you could still get food delivered, go to the store, and make use of other essential services.

These days though, you may be seeing more businesses opening.

ABC 7 News reported that most of California has now entered Stage 3 of its Resilience Roadmap.

Being in Stage 3 means that we are permitted to travel for certain activities such as buying food, essential supplies, or going to work, but that’s not the big change brought about by this step. Stage 3 is important because it involves the reopening of certain high-risk establishments.

These high-risk establishments typically involve people being in near one another. They include:

  • Aquariums
  • Gyms
  • Hotels
  • Museums
  • Outdoor recreational areas
  • Zoos

In-person religious services may also be permitted again in Stage 3, and sporting events may take place in California provided that they do so with no live audience in attendance. They still restrict large gatherings even with the further reopening of the state, however.

California Governor Gavin Newsom noted that the reopening of more businesses does not mean that the threat of COVID-19 has disappeared. Gov. Newsom even said that they are anticipating an increase in the number of coronavirus cases in California as they move forward with this gradual reopening, The Los Angeles Times reported.

Still, Governor Newsom did also say that he believes the state of California is in a better spot concerning the pandemic, and they have progressed in their efforts to combat it.

Where Does California Go from Here?

Now that California is deciding to move ahead with their reopening efforts, one of two scenarios can play out in the coming months.

The first is a bad scenario.

It’s possible that reopening California at this point could lead to an unforeseen spike in positive cases. Should that happen, the state government may decide to move back its timeline and hold off on their plans to reopen.

We may even see a return to Stage 2, wherein only essential services and low-risk businesses operate as the vast majority of the population remains under lockdown. Take note that some counties in California are still in Stage 2, and they could opt not to go along with the plans to further reopen if they feel that doing so will be safer for their residents.

The other scenario could lead to a more positive outcome. In this scenario, the guidelines enacted by the state government will be enough to mitigate a spike in cases and keep things under control.

Continuing down that road could finally allow for more businesses such as barbershops, hair salons, and even movie theaters to open to the public again.

From there, the state of California could enter the fourth and final stage of their Resilience Roadmap. In this stage, more establishments such as concert venues and nightclubs will be allowed to run again. Sporting events could also run again with people in attendance.

Restrictions on travel and the types of activities people engage in when they are outside may also be lifted once California reaches Stage 4. Hopefully, the state reaching this point will allow more businesses to hire more workers and further revitalize the economy.

However, we should note that Stage 4 is not a complete return to the old normal that we once knew, and that’s a good thing. The state government still intends to keep track of important public health indicators to see if COVID-19 may make a comeback.

The government can also decide to tweak its reopening plans if they determine that doing so is necessary to protect the health and safety of all Californians.

The COVID-19 pandemic’s impact is far-reaching and incredibly damaging. It has jeopardized public health and set the economy back potentially for decades.

Gradually reopening California is but a small step in getting the economy back on track, but it can work if we all pitch in, follow the rules, and continue to watch out for another.

If you also find yourself in need of legal assistance during this time, please do not hesitate to contact us at the Quirk Law Group as we are always ready to help.