If policymakers should learn one lesson from the long, sluggish recovery from the Great Recession, it is that cutting public spending, particularly by state and local governments, is a recipe for prolonged economic pain. My colleague Josh Bivens has described in detail how the state and local austerity of the early 2010s was both an unprecedented cutback in public spending following a recession and directly to blame for the slow pace of recovery.

Unfortunately, facing massive projected losses in revenue as the coronavirus has forced them to lock down their economies, many state and local governments are already cutting critical services and laying off staff. The April jobs report showed that nearly 981,000 state and local public-sector jobs have already been lost. To put that in perspective, that’s more than all the state and local public-sector jobs lost in the Great Recession and its aftermath.

As shown in Figure A, the peak for state and local government employment occurred in July 2008. As state and local budgets deteriorated throughout that year, governments began cutting services and staff. When the recession officially ended in June 2009, lawmakers in many states were already cutting jobs, choosing to slash budgets rather than pursuing new revenues. These cuts accelerated in 2010 as relief funding from the federal recovery act dried up, and they continued for several years, particularly in many states where conservative lawmakers took control following the 2010 elections. The result was a loss of nearly 800,000 state and local public-sector jobs by July 2013.

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Senate Majority Leader Mitch McConnell (R-Ky.) and Senator John Cornyn (R-Texas) announced that they are working on legislation to give companies enhanced protections against lawsuits by employees and consumers who contract COVID-19 and claim that the business is responsible for their infection. Instead of advancing crucial worker protections and aid to state and local governments, Republicans and corporate advocacy organizations have made “liability shield” legislation the main priority for additional pandemic relief and recovery measures—claiming that it is necessary to remove liability from businesses in order to reopen the economy. To be clear, removing legal accountability from businesses would jeopardize the health and safety of workers and consumers and threaten the overall economic recovery.

In the last several months, there have been many examples of businesses failing to provide workers with the necessary personal protective equipment to enable them to perform their jobs safely and effectively. Further, some workplaces have continued to operate when workers reported infection and have become epicenters of a local outbreak. Eliminating all legal liability for businesses will likely lead to more businesses acting irresponsibly and placing potential profits ahead of worker and consumer safety.

Compounding this problem is the fact that policymakers have gutted federal budgets for worker protection enforcement over the last decade, as shown in Table 1.

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Last week, 3.3 million workers applied for unemployment benefits. That is an improvement over the 6 million per week we saw in late March/early April, but is an increase from the prior week—and is still well over three times the worst week of the Great Recession.

Of the 3.3 million who applied for unemployment benefits last week, 2.2 million applied for regular state unemployment insurance (UI), and 1.2 million applied for Pandemic Unemployment Assistance (PUA). PUA is the new federal program for workers who are not eligible for regular UI (e.g., gig workers) but are still out of work as a result of the virus. At this point, 15 states and the District of Columbia are not yet reporting PUA data, so PUA claims are being undercounted. Note, the number of PUA claims for Massachusetts was misreported as 1,184,792. It should have been 115,952. I have corrected for that error throughout this blog post.

It is also worth noting that the Department of Labor (DOL) reports that 2.4 million workers applied for regular state unemployment insurance last week on a “seasonally adjusted” basis, compared with 2.2 million on an unadjusted basis. Seasonal adjustments are usually helpful—they are used to even out seasonal changes in claims that have nothing to do with the underlying strength or weakness of the labor market, typically providing a clearer picture of underlying trends. However, the way DOL does seasonal adjustments is distortionary at a time like this, so I focus on unadjusted numbers when looking at regular state UI. PUA claims are available only on an unadjusted basis.

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This blog post was originally posted in Newsweek.

The coronavirus recession is well upon us. In the U.S., layoffs related to the coronavirus began to intensify around the middle of March. By mid-April, the labor market had shed more than 20 million jobs, by far the most dramatic job loss on record—about two and a half times the job loss of the entire Great Recession. And the situation continues to deteriorate—an additional 12 million workers have applied for unemployment compensation since mid-April. There has never been anything like this.

The official unemployment rate was 14.7% in mid-April, up from 3.5% in February. And even though that is the highest unemployment rate since the Great Depression, it is not actually reflecting all coronavirus-related job losses. In fact, only about half of people who are out of work as a result of the virus are showing up as unemployed. About a quarter are being misclassified—they have been furloughed and should be counted as unemployed and on temporary layoff, but are instead being counted as “employed but not at work.” Another quarter are being counted as having dropped out of the labor force altogether, rather than unemployed. This is because jobless people who have not been furloughed are only counted as unemployed if they are actively seeking work, which is currently impossible for many. How is a jobless worker supposed to look for work in a lockdown or if he/she needs to care for a child whose school or day care has been shuttered?

If all workers who are out of work as a result of the virus had shown up as unemployed, the unemployment rate would have been 23.5% in mid-April instead of 14.7%. And the situation is going to get worse before it gets better—reasonable forecasts predict that the unemployment rate will average over 30% in May and June. Further, because our health system ties health insurance to work, people aren’t just losing their jobs. We estimate that 16.2 million workers have already lost the health insurance they get directly from their employer since the pandemic began—and these workers often cover family members through their employer-based plan, so the total number of people who have lost health insurance is likely almost twice as high.

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Despite repeated warnings, America’s industrial base has been whittled away by corporations offshoring work to Mexico, China, and other countries. The offshoring of much-needed medical equipment in the midst of the COVID-19 pandemic heightens the urgency to bring these supply chains home.

While U.S. Trade Representative Robert Lighthizer’s recent op-ed heralding an end to “the era of reflexive offshoring” highlights some positive steps forward by the USTR, much more needs to be done to bring supply chains home. It is not enough to—as the administration has done—set tariff policy by tweet, negotiate trade agreements that do not directly take on outsourcing across manufacturing and service sectors, and hope that corporations finally “see the light” and bring jobs home. Rather, returning jobs to America requires a robust, comprehensive strategy that coordinates policies in trade, currency valuation, investment, financing, energy, technology, tax, education, training, government procurement, and labor.

To start, this strategy would include the following:

• Insist that the Defense Department and other U.S. agencies cease their reflexive support for continued use of outside supply chains in Mexico and elsewhere and instead push for bringing work home.
• Ensure that “Made in the U.S.” in government procurement programs actually means that a product is manufactured by U.S. workers with U.S. supplies and materials.
• Require employment impact statements in government contract and award determinations in order to maximize U.S. job creation.
• Create a U.S. Manufacturing Investment Bank.
• Address currency misalignment.
• Eliminate tax incentives that encourage corporations to outsource production.

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Congress is currently debating a new relief and recover package—the HEROES Act—that would deliver significant amounts of fiscal aid to state and local governments—more than $1 trillion over the next two years, all told. This is a very welcome proposal. The incredibly steep recession we’re currently in is guaranteed to torpedo state and local governments’ ability to collect revenues. Further, nearly all of these governments are tightly constrained—both by law as well as by genuine economic constraints—from taking on large amounts of debt to maintain spending in the face of this downward shock to their revenues. The result will be intense pressure for large cutbacks in public spending by state and local governments in coming years. Such cutbacks would be absolutely devastating to the cause of restarting the economy and allowing people to find jobs, even if the virus has completely abated.

We know how devastating these cutbacks would be because we have lived through the mistake of allowing them to drag on growth in the quite recent past. State and local governments became relentless anti-stimulus machines during most of the recovery from the Great Recession of 2008–2009. This post highlights a couple of findings from that period that should inform policymakers’ decisions this time around.

• Growth in state and local spending was far slower during the recovery following the Great Recession than in any other post–World War II business cycle on record.
• This state and local spending austerity dragged heavily on growth during that time. If this spending had instead followed the trajectory it established following the recovery from the similarly steep recession of the early 1980s, pre-recession unemployment rates could have been achieved by early 2013 rather than 2017. In short, this austerity delayed recovery by over four years.
• Recent justifications for denying aid to state and local governments sometimes rest on claims that this spending has been profligate in recent years. This is absolutely not so—growth in state and local spending has been historically slow for nearly two decades. Given the importance of what this spending focuses on (education, health care, public order), this decades-long disinvestment should be reversed, not accelerated due to an unforeseen economic crisis.
• If federal aid is passed that is sufficient to close the enormous revenue shortfalls the economic crisis will cause for state and local governments, it will create or save roughly 5–6 million jobs by the end of 2021. Without this aid, we will remain at least that far away from a full economic recovery by then.

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On Friday, the Job Openings and Labor Turnover Survey (JOLTS) data for March will be released. Even though we already have more recent data on the labor market from other sources, this survey will provide important new information about how the coronavirus recession is unfolding.

That’s because JOLTS provides information on the moving parts that go into the net change in the number of jobs—job openings, hires, layoffs, voluntary quits, and other separations (which includes worker deaths). With JOLTS, we can get a picture of what is driving the net changes reported in the monthly jobs report.

Further, the JOLTS data that will be released tomorrow cover the entire month of March (as opposed to the monthly employment situation numbers, which only cover through the middle of the reference month). Because the labor market began deteriorating dramatically around mid-March, Friday’s release will provide a good sense of the underlying dynamics of the coronavirus labor market. At the bottom of this post is a text box explaining how the JOLTS data fit into the labor market data landscape.

What do we expect to see? Job openings and hires both have surely dropped dramatically, while layoffs have skyrocketed (note, in the JOLTS data, people who were temporarily laid off or furloughed are counted as layoffs, as long as the furlough is expected to last more than seven days). In April 2009—the worst month of the Great Recession for layoffs—there were nearly 2.7 million layoffs, or 2% of the workforce. In that same month, around 2.5 million people applied for unemployment insurance (UI). In March 2020, more than 10 million people applied for UI, so total layoffs will almost surely be higher than 10 million, which would far exceed the highest value in the series.

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Since the economic fallout of the coronavirus shock began in early March, the number of workers laid off or furloughed—as measured by new claims for unemployment insurance (UI)—has skyrocketed. We have used data from states that track UI claims by industry to get a rough estimate of how many workers are at high risk of losing their employer-provided health insurance (EPHI) over this as well.

The methodology is described in this blog post, and the underlying UI data (which has begun to include more and more states tracking UI claims by industry) can be found here. Table 1 below shows UI claims by industry across states that collect this data, and also shows employer-provided health insurance (EPHI) coverage rates in those industries in 2018. As of May 9, more than 35 million workers had been laid off or furloughed since mid-March, as measured by total initial UI claims during that period. We find that this translates into likely EPHI losses of 16.2 million.

Because the United States is unique among rich countries in tying health insurance benefits to employment, many of the newly unemployed will suddenly face prohibitively costly insurance options. A comprehensive policy solution would be to extend Medicare and Medicaid to all those suffering job losses during the pandemic period, with the federal government funding this expansion. It has been proposed that the federal government pay for all of COBRA coverage so that workers who are laid off or furloughed may continue their employer-provided coverage. While this policy proposal will help many workers continue coverage, in some states it will not help workers from small businesses with fewer than 20 employees, who are not eligible for COBRA.

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In the last eight weeks, more than 33 million people—more than one in five workers—have applied for unemployment insurance (UI) through regular state UI programs. That is more than five times the worst eight-week stretch of the Great Recession.