As responsible parents and grandparents, one of our primary tasks is to look out for the future of our kids and grandkids. Recently, we received the equivalent of a mild electric shock. It came in the form of a newspaper article, which opened like this:

“Imagine for a moment two objects in your hands. One is a piece of paper and the other a rubber band. If you squeeze your hands together hard and let go, the paper will remain crumpled, but the rubber band will return to its original shape.

Economists tend to think of the economy as the rubber band. After a shock, they expect it to go back to normal. When it doesn’t, like the crumpled paper, they call the effect “hysteresis” – lasting changes caused by some large perturbation.

The Covid-19 pandemic is a classic example. What permanent damage to the economy will it leave behind?”

The above is three short paragraphs from a story in The Wall Street Journal entitled: The Long-Term Economic Costs of Lost Schooling.

Post-Pandemic Educational Achievement

The Center for Research on Educational Outcomes at Stanford University studied educational achievement across 19 U.S. states during the pandemic. It reported on two key findings (there were others).

  • First, elementary students will lose from one-third to one year’s worth of reading advancement.
  • Secondly, from 75% of a school year to 232 school days equivalency of mathematics will be lost; 180 school days make up a typical school year.

Findings From the Stanford Institute for Economic Policy Research

Also quoted in The Wall Street Journal article was the work of Eric Hanushek, senior fellow at the Stanford Institute for Economic Policy Research. Using Germany-based longitudinal studies of lost class time as his research base – estimates due to the COVID-19 educational setback – he concluded:

Over the next century, the skill shock will produce $25 trillion to $30 trillion of lost economic output in today’s dollars. The lifetime household incomes of the affected students will be 6% to 9% lower.

If that assertion is shocking to you, you aren’t alone.

Hysteresis: Systems That Have Memory

Sir James A. Ewing, Scottish engineer and physicist coined the word “hysteresis” to refer to organisms, fields and systems that have memory. One popular example that helps to define hysteresis is iron, which retains magnetization after even being exposed and removed from magnetic fields. But the concept has applications in economic theory.

  • Hysteresis in economics is used to refer to an event in an economy that continues to exist even after the factors responsible for that event have been removed.
  • It may be in the form of prolonged effects of unemployment whereby the unemployment rate keeps rising despite economic recovery.
  • A good example of hysteresis is when the UK faced recession in 1981, with unemployment rising from 1.5 million to 2 million within 1980 and 1981.
  • Unemployment then rose to over 3 million after the recession, a hysteresis enhanced by a general mismatch of available skills and new industry requirements.

Hysteresis in economics may also be in the form of a market malaise persisting even where the trigger event no longer exists. A good example is an investor’s reluctance to reinvest after a market crash that led to losses.

What’s troubling is that hysteresis has the potential to impact entire industries. Air travel – particularly business travel – commercial real estate and bricks-and-mortar retailing may never be the same again after the pandemic is long gone. While there may be improvements as well as less favourable effects, it’s something to consider.

The Effect on Children

In terms of hysteresis, the main thing we have to worry about now is the long-term impact the pandemic will have on our children and grandchildren and their future. It’s not just their education and well-being to consider – it’s their eventual relationship to the labour force.

If as a grandparent or parent, you notice a falling behind in your children’s performance at school, you might want to consider how to address that decline once the pandemic finally ends. This is particularly true of older kids who are approaching post-secondary studies. Supporting their success may involve providing help to fill the gaps created over the past two years.

Our economy does not operate like a rubber band. And neither do the lives of our educationally deprived children. Those kids, be they yours or ours, might need some support to catch up – but in the end, they’re going to be okay.