On the Sideline: Long-Term Unemployment During COVID Continues to Rise

  • Long-term unemployment in the U.S. is skyrocketing, even as job growth rebounds.

  • As the number of workers on temporary layoff falls, permanent layoffs rise.

  • Consumer sentiment remains well-below pre-COVID highs.

Curb the Enthusiasm


As the U.S. enters a troubling new phase in the battle against COVID, the road to getting life and the economy back to normal feels just as bumpy as it started. While commerce has found creative and resilient ways to adjust, new data released by the Bureau of Labor Statistics indicates that the Spring's massive wave of layoffs has had a lasting impact.


Despite employment levels recovering from their April-nadir, the number of workers who have been unemployed for 27 weeks or longer continues to climb. After steadily decreasing since the late days of the Great Financial Crisis, long-term joblessness has risen by 2.6 million people since April and currently sits at its highest level since 2015. In the most recent jobs report alone, the number of workers classified as long-term unemployed jumped 1.1 million from the month prior, reaching 3.6 million through October.


The Long Game


Rising long-term unemployment has the potential to exacerbate already deep-rooted inequities. From both a public health and economic perspective, COVID has disproportionately impacted minority and low-income households. Longer-term unemployed workers overwhelmingly come from low-wage jobs, with 54% of workers having made less than $30,000 per year before being laid off. Once workers find new jobs, they often earn less than they did before. Compounding these challenges, there is increasing evidence that groups who face long-term joblessness are more likely to put off health care and other primary needs. In some cases, this has even worsened the academic performance of children whose parents have experienced extended joblessness.


So far, improving labor market conditions haven't bucked the trend. In recent months as hiring activity ramped up and initial unemployment claims fell, the persistence of previous job losses has created a pool of unemployed workers that are disproportionately long-term. The share of unemployed workers who are jobless for 27 weeks or longer jumped from only 4.1% in April to a substantial 32.5% in October. Meanwhile, the share that has been jobless for less than five weeks dropped from 61.9% to just 22.8% over the same period. On the one hand, this signals a slowdown in labor turnover, which is good news. However, the inability of unemployed workers to transition back into their previous or new jobs, even after the removal of many State-level restrictions over the Summer, is a concern for a post-COVID recovery pace.






*Slack Notification*


Once COVID exploded into an imminent public health crisis, a labor market shock and eventual rise in long-term unemployment was a certainty. Between February and April, U.S. employers laid-off more than 22 million workers, and the unemployment rate skyrocketed to 14.7%, its highest level since the Great Depression. However, there was hope that this would broadly translate into temporary unemployment for many who would quickly get rehired as the pandemic waned. Provisions in the Federal CARES Act aimed at helping businesses had initially kept some workers in that temporary status and even created jobs for others.

Unfortunately, eight months into the crisis and the pandemic has neither waned nor have job losses proven short-lived. Much of the initial federal stimulus has run out with little progress by Congress to inject more. After reaching a high of 18.0 million people in April, temporary unemployment fell to 3.2 million people in October. Over the same period, permanent job losses have risen from just 2.0 million to 3.6 million. While most workers who have transitioned out of temporary unemployment did so by returning to their jobs, the acceleration of permeant joblessness reveals that labor-market slack is likely to remain post-pandemic. Recent job gains are mostly in areas that suffered the steepest losses in the Spring: Leisure & Hospitality, Professional & Business Services, Retail, and Construction stand out in both regards. On balance, total employment remains well below pre-pandemic levels across all industries.


Forward Guidance


A build-up of indefinitely jobless workers does not only affect the well-being of directly impacted households; it also puts a speed limit on the pace of potential economic growth. As earnings fall, so does household consumption, pulling down demand levels for goods and services. Consumer sentiment in the U.S. dropped rapidly after stay-at-home measures took effect in March, and as of September, it has only recovered 29% of its losses. In an economy where household consumption represents roughly seven-tenths of all economic activity, consumers' capacity and willingness to spend will dictate whether or not we can sustain a robust recovery.


As the nation deals with another spike in infections, last Spring’s combination of extreme headwinds may be picking up steam yet again. Both rising cases and the absence of new federal stimulus relief are fueling economic anxiety. In just the last few days, several States, including California, Michigan, and New Jersey, have renewed limits on economic activity. Even States that were previously hesitant to introduce restrictions, such as Iowa and West Virginia, have reversed course and started to roll them out. With a vaccine potentially on the horizon, future expectations should trend more positively. Still, while containing the virus is the necessary first step in rebuilding our workforce and economy, it won’t be our last.





© 2020, Chandan Economics LLC

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