A spike in long-term unemployment is looming

Mitchell Hartman Sep 2, 2020
Heard on: Marketplace
A shuttered theater in Los Angeles. People laid off early in the pandemic who are still out of work are approaching what the Labor Department defines as long-term unemployed. Frederic J. Brown/AFP via Getty Images

A spike in long-term unemployment is looming

Mitchell Hartman Sep 2, 2020
A shuttered theater in Los Angeles. People laid off early in the pandemic who are still out of work are approaching what the Labor Department defines as long-term unemployed. Frederic J. Brown/AFP via Getty Images

It will soon be six months since the COVID-19 pandemic slammed into the U.S. economy. In March and April, 17 million Americans lost their jobs and became unemployed in the first wave of pandemic layoffs.

As of July, according to the BLS monthly jobs report, only 6.7 million — or 40% — of the newly unemployed were working again. As job growth continues to slow in the economic recovery, and workers who were initially put on temporary layoff or furlough are permanently laid off by their employers, millions of Americans face the prospect of falling into long-term unemployment.

COVID-19 has not been good to the live-events business. Rock concerts and festivals all but shut down on a dime in early spring.

That’s when 33-year-old Jason George of Benton Harbor, Michigan, got laid off. “Like many of my co-workers in the industry, we’ve been furloughed for a very long time,” George said.

Initially, George was put on temporary layoff from his job managing artists and shows for an event promoter. He got approved for Michigan unemployment ($350 a week, plus $600 a week in federal pandemic benefits until that program expired at the end of July). His employer kept paying his benefits, and he waited for a callback once the stay-at-home orders eased.

But by midsummer, venues still hadn’t reopened for large gatherings. And as of Tuesday, George’s employer made his temporary layoff permanent. Benefits continue to be paid through the end of the month.

“It does feel different,” George said, “because there’s not that safety net there anymore that I could possibly go back sooner rather than later. So it does feel official, like we’re on our own to figure things out for ourselves.” George’s wife is working more shifts at the restaurant where she serves, and he’s building up a freelance business to help make ends meet.

A lot more laid-off workers are likely to end up like Jason George in the coming months.

“It’s very unlikely that if you’ve been furloughed for this length of time that you’re going to go back to your current employer,” said Daniel Sternberg, head of data science at Gusto, an HR platform for small businesses.

Sternberg said that if a worker got furloughed in March, there was a 30% chance they’d be called back to work by April “because your company received [Paycheck Protection Program] funds or was able to reopen in some capacity. But then if we go out into future months, smaller and smaller percentages returning to work.”

By July, only 37% of furloughed workers had been called back.

And people laid off early in the pandemic are now approaching what the Labor Department defines as long-term unemployment: more than 26 weeks without employment, looking for work.

At that point, jobless benefits begin to run out. (States typically provide 26 weeks of regular benefits; after that, emergency extensions sometimes pay benefits for longer periods.) The long-term unemployed start to go through their savings to pay their bills, and their chances of getting reemployed decrease.

Harvard economist Gabriel Chodorow-Reich (along with economist John Coglianese at the Federal Reserve) have come up with projections for long-term unemployment as the pandemic downturn continues.

“In our baseline simulation, in early 2021, 4.5 million people will have been unemployed for more than 26 weeks,” said Chodorow-Reich. “A more pessimistic scenario is that number rises to more than 5 million.”

That would still be fewer than the peak of more than 6.5 million long-term unemployed caused by the Great Recession.

Recent polls have found that only a third of laid-off workers think they’ll be able to return to their jobs. And a quarter of those who are still working worry they’ll lose their jobs as the pandemic drags on.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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