The coronavirus recession will become a long depression unless federal policymakers act now
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.
Job loss is occurring across virtually the entire economy, but it is hitting low-wage sectors (think restaurants, bars, hotels, personal services, and brick-and-mortar retail) particularly hard. Because of disparate access to education, occupational segregation, discrimination, and other labor market disparities, black and Latinx workers and women of all races are more concentrated in these jobs. As a result, they are facing greater job loss.
One counterintuitive dynamic in the coronavirus labor market is that average wages have jumped up dramatically. Unfortunately, this is not because workers are getting big raises. Instead, it is because a large share of low-wage workers were dropped from the calculation of average wages simply because their jobs disappeared. Further, many people who have managed to hang on to their jobs have seen their hours cut—think of restaurant workers whose place of work is now only doing takeout. The number of people who want full-time hours but are working part-time because their employer didn’t have enough work for them has more than tripled since the coronavirus crisis began.
Despair is an understandable and reasonable response to all this. We should despair for the millions who have lost jobs, for their families, and for the immeasurable amount of lost potential. But then we must demand our policymakers do much, much more. The one bright spot in the recent jobs numbers is the fact that as of mid-April, about two-thirds of workers who are out of work as a result of the virus report they were furloughed or on temporary layoff—in other words, they expect to be called back to the jobs they had before the coronavirus shock. Whether they will actually be called back or whether those furloughs will turn into layoffs is the fork in the road upon which we are now standing as a nation. If effective public health measures—widespread testing, contact tracing, self-isolation of those who have been exposed, and mask-wearing—are enacted, nonessential sectors of the economy that have been shut down will be able to successfully reopen in phases.
If the federal government provides sufficient aid during this crisis so that people’s income doesn’t drop dramatically (even if they have been unable to work), so that businesses stay afloat (even if they have been totally or significantly shuttered), and so that state and local governments whose tax revenues are plummeting are not forced to make drastic cuts that will hamstring the economy, then those furloughed workers could get back to their prior jobs and the recovery could be rapid because confidence and demand would be relatively high. But if the federal government doesn’t act, then those furloughs will turn into permanent layoffs and the country will face an extended period of high unemployment that will do sweeping and unrelenting damage to the economy—and the people and businesses in it.
Federal lawmakers get to choose which path we take. They must act quickly and boldly.