A wave of layoffs has clenched the U.S. economy in the past week as restaurants and shops shut down across the country, part of unprecedented efforts to control the spread of the coronavirus and keep healthcare systems afloat.
These events are jolting the labor market with major spikes in unemployment claims.
18 Months of Job Growth Lost
Initial jobless claims for the week ending March 21 soared to 3.283 million, as a record number of Americans filed for unemployment benefits in the wake of the COVID-19 pandemic. The seasonally adjusted initial claims for the week ending March 14 were 282,000.
With this volume of claims, unemployment for the month of March could reach 5.9 percent, an increase of 240 basis points. If the same number of claims are filed for the week ending March 28, unemployment could reach 7.8 percent. This would be an unprecedented jump. For comparison’s sake, the nation’s 20-year unemployment peak was 10.0 percent in October 2009.
It’s important to note that 7.31 million people, or 4.6 percent of the total U.S. employment figure, are not covered by unemployment insurance and therefore are not calculated in this number. These include part-time, seasonal, independent contractors and gig employees.
The largest non-seasonally adjusted increases in initial claims for the week ending March 21 were in:
- Pennsylvania (+363,469)
- Ohio (+180,738)
The states most impacted by COVID-19 cases saw increases of:
- New Jersey (+145,987)
- California (+129,203)
- Washington (+119,238)
- New York (+66,062)
- Illinois (+103,793)
Based on sentiment across news outlets and reports from those affected, these reported claims could be significantly lower than the actual numbers, as state websites are not equipped to handle the heavy volume of claims.
Historical Initial Claims
This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series. So, a surge of 3.283 million initial claims is uncharted territory.
Aid Package Aims to Soften Impact
Ending days of negotiation, the Senate passed the largest emergency aid package in U.S. history and it is now with the House of Representatives. This aid package, aimed at boosting the struggling economy, totals approximately 10 percent of GDP. If passed by the House and signed by the President, the package means the country’s fiscal deficit could reach 20 percent of GDP this year. The plan will deliver a massive infusion of aid into an economy hard hit by job loss, with multiple provisions to help impacted American workers and families. This plan also contains provisions for small businesses and major industries, including airlines.
Of the $2-trillion-dollar package:
- $1,200 minimum will go to low- and mid-income individuals, plus $500 per child. If individual income is below $75,000, the full amount is sent, but phases out to zero for those earning more than $99,000;
- Joint filers earning less than $150,000 will receive $2,400;
- $350 billion has been set aside for small business loans;
- $250 billion has been allocated for unemployment insurance benefits; and
- $500 billion is available for loans for distressed companies.
Specifically related to unemployment, three provisions exist:
- Employees can get four months of expanded unemployment benefits, with increases to the overall benefit by $600 a week over that period.
- Jobless benefits would extend to the self-employed and "gig" workers unable to work due to the pandemic.
- States are incentivized to pay the first week of benefits immediately upon a worker filing for unemployment, as opposed to the traditional one-week lag.
A Rich Stabilization Package
With aggressive measures can come unintended consequences. While the stabilization package aims to provide immediate relief, it could be argued that unemployment benefits that are too “rich” could encourage those out of work to remain so longer than intended. During the Great Recession, long-term unemployment was as high as 45 percent of the total unemployment population. Based on research conducted by Princeton University economists Alan Krueger, Judd Cramer and David Cho, the number of long-term unemployed persons normally hovers at around 10 to 20 percent of the unemployed population.
On the other side of the coin – and serving to get workers back to the watercooler – are forgivable loans geared toward small and medium-sized businesses making up the majority of U.S. businesses.
Small and medium businesses with fewer than 500 workers will be able to apply for government-backed, forgivable loans to cover the costs of their workers’ wages. This could serve to also cover other business expenses, such as rent, up to a maximum of $10 million. If businesses begin to lay off workers, however, parts of the loan will not be forgiven. Larger companies with up to 10,000 employees will get tax credits covering 50 percent of employees’ wages.
The real need to boost the economy dwarfs the current stabilization package. In the short-run, workers and businesses will get much needed help during this unprecedented period in our country, but multiple rounds of economic stabilization may be needed.
ThinkWhy continuously monitors and forecasts labor data at all levels, measuring impact to MSAs and businesses across the country. Stay current with us. We are here to support organizations and provide insights during the economic downturn, as well as the recovery phase.