This recession won’t be as bad as the last

If you’re under 30, it’s hard right now to think about anything except that hazy future when the virus recedes and most of us, hopefully, go back to our normal lives. Will Generation Z be the second successive cohort that sees its dreams put on hold indefinitely by an economic crisis not of its making? Will its members, too, end up living at home for years and working a series of dispiriting service jobs that lead nowhere? Worse still, what if those service jobs don’t survive months of everyone eating and shopping and entertaining themselves at home?

I’m here to offer a bit of reassurance.

Before we get to that, however, I’m going to lay out the bad news, so that you know I’m not just trying to cheer you up. The next few months are going to give us the sharpest, most devastating contraction in America’s recorded economic history. Goldman Sachs is forecasting that almost one-fourth of all economic activity will grind to a halt for April, May and June.

Economists left and right are uniting around some version of an unprecedented “subsidize everything” approach that should help all individuals and many affected businesses survive the coming months. Nonetheless, some businesses will fail, and possibly even some industries. If you work for a movietheater chain or cruise-ship line, you should look for other work.

That’s the unvarnished downside projection. Now for the reassurance: There’s no particular reason to think the current generation of young people will face what their predecessors did in 2009: years of unemployment or underemployment as they tried, and failed, to regain their once-secure economic foothold.

Think of recessions as a form of revelation: moments when we learn that collectively, we’ve made a bunch of bad guesses about what people want. For example, a lot of homeowners convinced themselves that housing prices would continue to rise indefinitely, so it was safe to buy a $500,000 McMansion on a $75,000 annual salary — after all, worst comes to worst, you could always sell and walk away with a profit. Those ever-rising prices suggested that no one ever needed to default, so banks got the idea it was safe to lend those people 100% of the purchase price. And those low defaults convinced all our pension funds and investors that it was safe to buy big bundles of those mortgages.

When everyone realizes they’ve guessed wrong, there’s a grim period where we all pull back and try to figure out what’s actually wanted and needed. That’s a recession.

Recessions, especially deep ones, can have an effect called “unemployment scarring,” especially on young people. When employers lay off workers, they try to keep their most skilled and productive employees; when employers cut back on hiring, they still hire the best candidates from every class. That sends future employers a poor signal about the workers who end up on the job market, especially if they linger there.

That signal is extremely noisy; I’m not suggesting that most people laid off during a normal recession were bad workers who deserved it. But when unemployment is high, employers have a lot of candidates to choose from, and even an unreliable indicator helps them weed down their applicant pool.

A series of employers making these ham-fisted decisions can permanently depress the wages of people who entered the job market during a recession. Even when they climb back on the employment ladder, they have lost years of the experience and raises that are helping their peers negotiate higher salaries.

But while this recession is also a revelation of sorts — after a century of medical miracles, we are still vulnerable to contagious disease — it does not signal fundamental structural problems in the underlying economy. The problems it has revealed will ultimately probably mean more domestic manufacturing, which shouldn’t hurt Generation Z’s job prospects.

Nor does it signal anything about potential job candidates when entire sectors shut down. That means that workers affected today shouldn’t have so much trouble finding new jobs (or regaining their old ones) when things finally bounce back; Goldman Sachs expects the economy to recover virtually all its lost ground in the second half of the year.

That timing might be optimistic, but it is reasonable to think that when we can go back to work, the economy will roar back to provide the jobs. So while everyone is bracing for very hard months ahead, the young shouldn’t spend too much of that time worrying whether they’re also looking at hard years and decades to follow.