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Economists project years-long impacts as another 2.4 million file new jobless benefit claims

President Donald J. Trump participates in a roundtable on the economy and tax reform Monday, April 15, 2019, at Nuss Truck & Equipment in Burnsville, Minn. (Official White House Photo by Shealah Craighead)

The chart, sourced from National Bureau of Economic Research calculations shows U.S. unemployment from December 1929 through June 1942, with a peak unemployment figure of 25.6% in May 1933.


(Link to interactive version of above chart.)

The Department of Labor reported Thursday that 2.38 million workers filed new claims for unemployment benefits in the week ending May 16. That brings the total count for the past nine weeks to a seasonally adjusted 38.3 million. Adding to this the unprecedented 4.8 million that the government defines as having left the labor force in the past two months—but say they want a job—would put the current seasonally adjusted unemployment rate at 26.3% by my calculation. As shown in the chart above, this would make it higher than the worst of the Great Depression at 25.6% in May 1933. Almost three times worse than the Great Recession at 10% in October 2009.

Beyond bad, but still less than the 30% or more that many analysts expect the government will announce in the May jobs report to be released on June 5.

How many of these people have already returned to work as states reopen their economies is uncertain, but the number is almost certainly small so far. Besides the 38.5 million applying for benefits, 6.4 million workers left the labor force from mid-March to mid-April. While some of these drop-outs no doubt retired or enrolled in school or left to take care of an aging relative or a new infant, those millions are a dozen times higher than the number who typically join or leave the labor force each month. Which means the actual number of those who left with no intention to return when the economy improves is wildly skewed.

It’s not hard to figure out why. BLS statisticians count anyone who is out of work but hasn’t looked for a job in the past four weeks as no longer in the labor force. That’s a problematic definition even in “normal” times. But it’s especially so now because many abruptly jobless people have found it impossible (or thought it impossible) to look for other work in the midst of a pandemic shutdown when millions of businesses aren’t even open, much less hiring. Accurately counting these leavers and returners in a timely manner in the midst of our current chaos simply isn’t possible.

Let me be clear. Although new benefit claims show the situation is truly bad, the Bureau of Labor Statistics does not use benefit claims—new or recurring—to calculate the unemployment rate. It does so with the monthly Current Population Survey conducted in the week that includes the 12th of each month. The most recent bureau calculation for the mid-March to mid-April period placed unemployment at a seasonally adjusted 14.7%. Because of the timing of the CPS survey, those data were three weeks out of date by the time the report was released May 8. That made for a serious undercount. The next monthly jobs report is due June 5, and those data—collected in the middle of this month—will also be three weeks out of date.

Normally, month-to-month changes in the job count are relatively small, so the out-of-date information doesn’t affect the overall picture that much. But changes now are unprecedented both in absolute numbers and the speed at which they are occurring. Getting a handle on the actual situation is thus much harder than in more stable times.

There’s nothing they can do about the time-lag, but Jason Faberman and Aastha Rajan at the Chicago Fed have proposed a new BLS category to provide a more helpful look at what’s happening in the labor market. They label it the U-Cov rate. This includes underemployment as well as unemployment, as does the BLS U6 category, plus all the people on unpaid leave, plus the people who have left the labor force but say they want a job. Faberman and Rajan calculate the U-Cov unemployment rate at a not-seasonally-adjusted rate of 30.7%.

Comparisons of now with the Great Depression of nine decades ago are inevitable. However, the pandemic recession and economic response to it are unique. For one thing, we have a safety net that didn’t exist in 1929 when the Great Depression got underway. Republicans, who haven’t been fans of the safety net since it was established, apparently plan to make it more rickety by their unwillingness to do any more than has already been done to shield the most vulnerable from outright economic disaster of the Pandemic Recession. Their view: reopening the economy will fix everything, vaccine or no vaccine.

Given the purpose of the shutdown, no reason exists for the Pandemic Recession to run for an entire decade the way the Great Depression did. However, ensuring that a lengthy recession isn’t in our future requires aggressive action now. Republicans nonetheless appear ready to force most of the populace to tough it out while they provide billions in assistance to the fossil fuel industry and their other favorites. Just as Donald Trump thinks the coronavirus will vanish without a vaccine, they think the economic impacts will disappear with no need for further government intervention.

Down that path lies deep pain and lasting economic wreckage.

In a recent interview, former IMF chief economist Kenneth Rogoff, a conservative who in the past advised John McCain, said: “It’s a little bit as if you were in a war and saying, ‘I’m not going to grade how you’re doing on the battlefield. I’m just going to grade how you’re hiring extra workers at home.’ Obviously how you’re doing on the battlefield is driving everything.” He went on:

I liken the incident we’re in to The Wizard of Oz, where Dorothy got sucked up in the tornado with her house, and it’s spinning around, and you don’t know where it will come down. That’s where our social, political, economic system is at the moment. There’s a lot of uncertainty, and it’s probably not in the pro-growth direction. [...]

It’s probably going to be, at best, a U-shaped recovery. And I don’t know how long it’s going to take us to get back to the 2019 per capita GDP. I would say, looking at it now, five years would seem like a good outcome out of this.

Such a “good outcome” means immense damage.

The most recent near-term assessment of the Congressional Budget Office—which projects a slight improvement over its previous assessment—says gross domestic product will contract at a 37.7% annualized rate in the second quarter that ends June 30, with a rebound in the second half of the year. Katia Dmitrieva at Bloomberg writes about one long-term impact:

[...] the unemployment rate is seen averaging 11.5% this year and only improving marginally in 2021 to 9.3%, just under the high reached in the 2007-2009 recession. The effects of the coronavirus on the economy will stick around for years to come, particularly for those just entering or new to the labor market.

“The reduction in the number of people employed in 2020 and the persistence of high unemployment through 2021 may have a negative effect on the job prospects and earnings of younger generations that will be felt long into the future,” according to the CBO.

Heidi Shierholz at the Economic Policy Institute writes:

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 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.

Waiting to see how what many epidemiologists say is a premature reopening of the economy turns out before passing any further relief legislation runs a risk similar to a delay in action on the climate crisis. The longer we wait, the worse the long-term outcome.

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