Unemployment Goes Viral

Unemployment Goes Viral
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Much like the pandemic that caused it, the employment situation in the US is changing faster than our systems can track. A booming economy has, almost overnight, transformed into a historic recession, with outlets such as the St. Louis Fed projecting unemployment rates greater than 30 percent in the coming weeks. On April 2, the Department of Labor reported over 6.6 million initial unemployment claims for the week ending March 28 - the highest number of such claims in a single week in US history.

Data are still limited, but the DOL report shows skyrocketing unemployment in nearly every state. The five states with the largest increase in new unemployment claims relative to the week before – Pennsylvania (+363,012), Ohio (+189,263), Massachusetts (+141,003), Texas (+139,250), and California (+128,727) – report layoffs across a wide range of sectors as well. While some industries felt the initial shock more than others (e.g., service industry versus knowledge economy work), nearly all are feeling the pinch now. No one, it seems, is immune to the cascading effects of an economy in retreat.

The DOL’s monthly “Employment Situation” report also came out on April 3. The data lag considerably, missing out on the majority of the disruption from the last two weeks, but even survey data collected in mid-March show the early signs of a downward spiral and reveal important trends about who has been hit hardest by the first wave of dislocation.

Unemployment in March rose to 4.4%, a 0.9 percentage point increase from the month before and evidenced by a total nonfarm payroll employment decline of 701,000 jobs. This is the worst month for job loss since the Great Recession, with some projections suggesting that by May, the US will have lost all job gains since 2010. If the recently passed stimulus legislation is moderately effective, we might hope to regain much of that lost ground quickly once COVID is brought under control.

The largest decline in employment was in leisure and hospitality, with some 459,000 jobs disappearing (unsurprising given social distancing mandates). Health care and social assistance fell by 61,000 as well reflecting a shift away from elective medical procedures and toward more intensive forms of COVID-related care. Retail saw relatively minor losses of 46,000. It should be noted, however, that these data were collected before most cities shut down all “non-essential” business operations.

The demographics are also worth noting. Adult men and women share a similar 4% unemployment rate. There are some discrepancies by race, with unemployment among White (4%) and Asian (4.1%) workers remaining somewhat lower than among Black (6.7%) and Hispanic workers (6%). Education also seems to be an early dividing line. The largest unemployment rate increase occurred among workers with less than a high school diploma, rising from 5.7% in February to 6.8% in March, with high school graduates seeing a slightly smaller percentage increase from 3.6% to 4.4%. The largest increase in unemployment in raw numbers occurred among workers with a bachelor’s degree and higher (up by 307,000). This was the smallest relative increase (0.6 percentage points) among education groups, but notable nonetheless.

These data were already outdated when they were released, but they reveal a couple of important trends. First, the most vulnerable have been hit the hardest by the first wave. Congress has taken a few steps to help these workers, but additional intervention will be needed to ensure their basic needs are met for the duration of the crisis, as well as exploring creative options to ensure rapid reattachment to the labor force.

With luck and the support of federal stimulus, many firms will be able to reopen and resume operation allowing its workers to pick up where they left off. For those workers in companies that permanently shutter, reattachment and retraining will be critical. The public systems currently struggling to process unemployment claims will be no better positioned to support a flood of workers seeking reemployment services. We’ll need a more decentralized and flexible system for helping workers find jobs that align to their skills. Hourly workers were hit hard and early, and may be some of the last to come back online safely. We need to start thinking now about how we can help these workers survive today and prepare for a new, and at least temporarily less favorable, normal.

Second, COVID-19 hit some state economies earlier and harder than others. Pennsylvania, for instance, reported nearly twice the increase in initial claims in the week ending March 21 than the next highest state. While further research is needed to fully understand why, it seems plausible the discrepancies are the result of wide variation in state economies/industries, state and local government responses, and relative spread of the virus in certain regions. Pennsylvania’s governor was among the first to issue partial and state-wide closure orders, representing a “bow wave” for what other states are now experiencing. State, sub-state and multi-state regional economies will face different challenges to sustaining laid-off workers and rebuilding economies. They will need funding but, as important, flexibility to rebuild according to these varying needs. One size fits all solutions won’t fit this unprecedented moment.

Finally, no industry or group is fully sheltered from the crisis. Even the earliest data show significant employment declines among workers with bachelor’s degrees and above. We can expect this to grow as supply chains are disrupted, demand continues to decline, and even well-positioned employers take a hard look at quarterly losses. While these workers are perhaps the most equipped for a potential career pivot and labor market reattachment, they, too, will need help.

We have a long road ahead of us.

Brent Orrell is a resident fellow at the American Enterprise Institute where he conducts research on workforce development, criminal justice reform, and social theory. Caleb Seibert is a research assistant at the American Enterprise Institute.

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