How many jobs will come back after the COVID-19 pandemic ends?
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When the monthly jobs report came out on Friday, President Donald Trump brushed aside the staggering statistics — 14.7% unemployment, more than 20 million jobs lost in April — saying, “those jobs will all be back, and they’ll be back very soon.”
Many workers believe that, too — at least the part about getting their jobs back at some point. Of those who lost jobs last month, 78% reported they were temporarily laid off.
That was “the one point of light” in an otherwise “grim, shockingly bad” report from the Labor Department, said Heidi Shierholz, director of policy at the Economic Policy Institute and former chief economist at the Labor Department.
“If people are on furlough that’s better for them because then they don’t suffer the real economic trauma of losing a job,” she said. “When the lockdown is over, they’ll be able to get right back to work. That’s good for the business, it’s good for the worker, good for the economy.”
But a paper out this week from the Becker Friedman Institute at the University of Chicago estimates that many of the layoffs people expect to be temporary will actually become permanent.
“Our best guess is something like 60% of the employment reduction is going to be temporary, and 40% is going to be permanent,” said Nicholas Bloom, an economics professor at Stanford University and one of the co-authors of the paper. “Looking through history at previous recessions, often these temporary layoffs unfortunately turn out to be permanent.”
Already, there is evidence of that happening. MGM Resorts told employees in a letter this week that some of those who are currently furloughed may ultimately be laid off, if business doesn’t bounce back by the end of August. Other big companies, like Nordstrom, J. Crew and Neiman Marcus that initially furloughed employees are now starting to close some of their locations or file for bankruptcy, which will likely lead to more permanent layoffs. In the wake of other disasters, FEMA has found that around 40% of small businesses never reopen.
“Horribly, unfortunately, if things don’t recover rapidly, I’m sure we’re going to see a wave of firms converting temporary to permanent job reductions,” Bloom said. “Part of the dynamic is, no company wants to be the first to announce this. But what’s a trickle turns into a roar of bad news.”
With every passing week, the risk that furloughs and temporary layoffs will become permanent increases.
“Looking at the historical data, temporary layoffs tend to be quite short in duration,” said Ryan Nunn, policy director for the Hamilton Project and a fellow at the Brookings Institution. “A little more than half of them last four weeks or less.”
Already, shelter-in-place orders have extended well beyond four weeks in much of the U.S. Many cities and states are getting close to the two-month mark, and have not yet laid out timetables for reopening — not what most businesses expected when the pandemic first began.
“If you were an employer and you told your workers you were just furloughing them for a while, and were going to hire them back, it would have been totally understandable two months ago. Now we’re seeing that this is just a much more cataclysmic thing that we’re going through than people were initially kind of able to comprehend,” Shierholz said. “I do think there’s probably a lot of businesses out there that expected that exact scenario, and then when it comes down to it, they’re actually going to have to instead declare bankruptcy.”
Given the continuing uncertainty and widespread economic disruption, Bloom and his co-authors estimate some 13 million jobs have already been lost for good, if not yet on paper.
“I think that’s a key message to understand the outlook for the economy, and for the policy responses to the pandemic,” said Steven Davis, a professor of economics at the University of Chicago Booth School of Business and one of the paper’s co-authors. “Policies to date have been predicated mostly on the presumption that all the jobs, or most of them, would come back. Many of them will … but there will be millions and millions of jobs that are lost and won’t come back. So we need to face up to that fact.”
For every 10 jobs being lost because of the pandemic, there are three being created, though many, at companies like Walmart, Amazon, CVS and Domino’s, do not look like the jobs being lost. Going forward, there will likely be even more of a reallocation of jobs because of the pandemic, both on a short-term basis and on a longer-term basis, according to Bloom.
“The COVID recession does not look like a normal recession,” he said. “It’s part natural disaster and it’s part war. So the other good analogy is Pearl Harbor, whereby a horrible event happens and the economy has to rapidly shift focus. In that case, to making tanks and guns and arming for a war. In our case, it’s for shrinking down services that the pandemic has made unsuitable in the short run, like a lot of leisure and tourism and travel, and expanding cleaning, home delivery, health care.”
Just two months into the pandemic, nearly 70% of Americans are now unemployed or afraid they will lose their job in the coming year, according to the most recent Marketplace-Edison Research Poll. Almost a quarter are not at all confident they would find a new job within six months. Confidence is even lower among those without a bachelor’s degree, and those making less than $50,000 a year. With the unemployment rate currently higher than it has been since the Great Depression, that is likely a realistic outlook.
“We should brace ourselves for a very long return path to the kind of unemployment rates that we had grown accustomed to as recently as January and February,” Davis said. “We were in a great place before the pandemic hit. Unfortunately, we’re not going to get back there quickly.”
There is also this: the real unemployment rate in the U.S. is likely closer to 20% than the 14.7% reported Friday by the Bureau of Labor Statistics. That’s because millions of people who should have been classified as temporarily unemployed reported that they were employed but absent from work, meaning they were not factored into the unemployment rate, according to the BLS.
The speed of the recovery will hinge largely on whether government stimulus is enough to keep businesses and unemployed workers afloat, and what happens as cities and states start to reopen.
“We’ll learn a lot in the next few weeks as many parts of the country begin to at least selectively roll back some of the lockdown provisions,” Davis said. “If things go well and we keep the pandemic under control in those areas, then we can gradually reopen much of the economy. But if every time we relax the restrictions we see a high incidence of major outbreaks, then we’re going to be in this kind of world we’re living in now for a long time.”
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