The coronavirus impact on business affected every industry in some way. The effects were even felt on “essential” engineering jobs.
I’m going to focus on the effect on U.S. small businesses and essential engineering jobs. These are engineering jobs directly impacting the real world. Thus, not including most software development jobs.
As a power engineer, I’m considered an essential worker. In other words, I didn’t need to work from home in the pandemic shutdown.
I provide engineering services to both power and water-related projects in California.
My experience when COVID-19 shut economies down
I remember the highways to the Bay Area were empty. Even at rush hour, when normally it’s bumper to bumper.
Even more, I couldn’t contact some of my clients and subcontractors. These were contacts for my ongoing power and water-related projects.
My calls and emails would go unanswered. While many projects I managed slowed to a crawl.
Cities, counties, and businesses all were experiencing uncertainty, sourced from:
- Fear: people scared of how to act. They didn’t want to jeopardize their own health and the health of their loved ones.
- General uncertainty: a high level of uncertainty over everything. People weren’t sure if the situation would worsen. Or, how long shutdowns would continue.
- Engineering project funding: uncertainty over project funding. For example, should a city upgrade a water treatment facility in a time of uncertainty? So, higher-ups were scrambling to determine if they should freeze a project.
- Social distancing: how to approach field and construction work. At most project sites, it’s difficult to maintain 6-feet of social distancing.
To better understand the 2020 pandemic, let’s look at the most recent 2008 Great Recession. As any shake in the economy affects small businesses.
2020 market versus the 2008 Great Recession
In 2008, a deregulated financial market nearly collapsed the entire U.S. economy. It created the following domino effect:
- Banks could sell mortgage derivatives, and not bear any default risks.
- More loans demanded by banks.
- Banks created interest-only loans for subprime borrowers. Lending then became very loose, allowing more issued loans.
- Banks approved loans for buyers who couldn’t afford their home mortgages.
- Buyers fell behind on their mortgages. Buyers had to short sale their homes and file for bankruptcy.
- Banks froze credit due to having a high default rate in their loan portfolios.
But, I still saw many businesses close their doors. Credit had dried up and major banks were near collapse.
As a response, banks shortened their lending hand to reduce their risk. Then businesses began to suffer since they rely on credit to operate.
Let’s look at the mayhem. The U.S. created roughly 670,000 businesses every year in the decade before the 2008 market crash. In 2010, this figure dropped to 560,000. This according to the Bureau of Labor Statistics.
The below graph from the Bureau of Labor Statistics shows the spike in business closures. Around 170,000 small businesses closed between December of 2008 and December of 2010.
This market turmoil then led to millions of lost jobs. 8.7 million jobs went away from December of 2007 through December of 2009.
I saw highly coveted Silicon Valley jobs go up in smoke. These were startups and companies that were supposedly insulated from market dips.
Essential engineer jobs in the 2008 Great Recession
I received calls from countless colleagues and friends who had lost their jobs. These were jobs in the non-software engineering fields. The following then unfolded:
- Lending tightened.
- Housing construction halted as builders couldn’t secure loans. Plus, there was an oversupply of homes on the market.
- Many types of engineers could no longer design for increased demand. Think of engineers designing for future water or power demand.
- In short, many engineers design for future demand. Thus, you leverage today’s dollars to build for the future.
But, when you can no longer leverage today’s dollars because of a credit freeze, work drys up.
2020 coronavirus impact on small businesses
This time the U.S. economic crash wasn’t sourced from subprime mortgages. We didn’t directly create this mess.
Rather, an unknown dangerous virus engulfed us all. To top it off, the virus exposed major inefficiencies in America’s supply chain.
America heavily depends on China for essential supplies. At the time, China was dealing with the virus outbreak in their own country.
Their own people took precedence. Plus, every other country in the world was demanding extra supplies from China.
Even more, U.S. hospitals weren’t prepared for mass-scale infections. Hence, the U.S. government mandated shelter in place. This way, hospitals wouldn’t be overrun with patients.
As a result, small businesses shut their doors.
In America, small businesses are the backbone of the economy. Small businesses account for 64% of the net new jobs created between 1993 and 2011. This according to the US Small Business Administration.
To add color to the picture, 64% is 11.8 million of the 18.5 million net new jobs created.
The importance of small business in the American economy
Small business accounts for 44% of the total private payroll in America. Without them, America’s economy would freeze.
Not to mention, large billion-dollar businesses highly depend on small businesses. A lot of the fortune 100 companies serve small businesses.
For example, a large part of ad spending on Google and Facebook comes from small businesses. As another example, before the pandemic, Yelp had a value of over $3.5 billion.
Without small businesses, Yelp would die overnight.
Let’s take one step further. Small businesses create future giant companies of tomorrow.
Look at this below list of small business founders:
- Henry Ford (Ford)
- Bill Gates (Microsoft)
- Sam Walton (Walmart)
- Steve Jobs (Apple)
- Larry Page and Sergey Brin (Google)
- Elon Musk (Space X and Tesla)
These founders all started their companies as small businesses. Now today, they employ millions of people. I only listed a handful of founders too.
Thus, it’s important we protect small businesses. And their life support, credit, is not cut.
For this reason, global pandemics scare me. We lose control of protecting small businesses.
Economic shutdowns cripple small businesses
99.7% of U.S. businesses have fewer than 500 workers according to the Census Bureau.
Also, most small businesses don’t have a vault of cash saved. Businesses like Google and Apple are outliers with billions of dollars in the bank.
Most small businesses rely on continuous work. Their cash flow goes to payroll and other overhead costs every month.
Their business model is not scalable. In other words, small businesses exchange man-hours for dollars.
Think of a business like a shark. A shark needs to constantly move or it’ll die. The same goes for small businesses.
A business can stretch only so far before filing for bankruptcy.
I knew many small business owners who shut down for good in the summer of 2020. Going 4 plus months without cash flow is crippling.
Coronavirus impact on essential engineering jobs
In engineering, we don’t fix a fallen power pole to return power to a community.
Rather, we design and research. Below are typical projects I work on in the power and water field:
- Upgrade a water or wastewater treatment plant for increased capacity
- Upgrade filtration equipment at a water treatment plant
- Retrofit and upsize a substation to meet increased power demand
- Upgrade old and failed electrical equipment, ranging from 120 volts to 230,000 plus volts
- Improve protection and reliability at a substation through relay upgrades
Economic shutdowns will cause job loss for many essential engineers.
As I mentioned earlier, many power and water-related projects would freeze. So unless equipment fails, engineers wouldn’t do much design work.
Cities and counties would instead use their funds to tackle the pandemic. People need supplies, protection, and so much more. We’d rely on our existing working infrastructure to get us by.
Also, private businesses would halt their engineering projects too. Without cash flow, private businesses would preserve cash to survive.
As an analogy, think of your own financial situation. If you lose your job, will you try to buy a bigger home and a nicer car? I wouldn’t think so.
For this reason, essential engineers aren’t even immune to frozen economies.
A business isn’t going to pay a room full of engineers who are sitting on their hands doing nothing.
Coronavirus impact on business will drive the world in a new direction
Economies are not made to freeze. The outcome is high unemployment and business bankruptcies. Essential engineers aren’t even immune.
As an optimist though, I see the positive side as well. I hope in the long term, the coronavirus’ impact will bring positive change. The same high-level changes we saw after 9/11. These changes include:
- Return of manufacturing jobs to America, especially for essential supplies in the medical field
- Improve medical screening for travel and immigration
- Improve virus outbreak protocols
- Increase medical research funding for vaccines and medical treatments
I hope the coronavirus outbreak will strengthen humanity as a whole. As a result, we become better prepared to handle future adversity.
It’s clear, our economies are fragile. We need to better prepare for future catastrophes.
What happens if something more impactful than the coronavirus strikes us? Think of a powerful coronal mass ejection.
Do you think business operations have forever changed because of the coronavirus? How do you think global governments should handle future virus outbreaks?
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Koosha started Engineer Calcs in 2020 to help people better understand the engineering and construction industry, and to discuss various science and engineering-related topics to make people think. He has been working in the engineering and tech industry in California for over 15 years now and is a licensed professional electrical engineer, and also has various entrepreneurial pursuits.
Koosha has an extensive background in the design and specification of electrical systems with areas of expertise including power generation, transmission, distribution, instrumentation and controls, and water distribution and pumping as well as alternative energy (wind, solar, geothermal, and storage).
Koosha is most interested in engineering innovations, the cosmos, our history and future, sports, and fitness.