For all the horror, the US jobless numbers are not as bad as they seem
Lay-offs are a ‘temporary’ measure – but the benefits system is battling to cope with weight of demand
The US jobs cataclysm is not as terrifying as it looks. Part of it is real; another part is a statistical mirage caused by the enforced shutdown. The 22m surge in unemployment claims over the last four weeks has nothing in common with any previous recession, let alone the dole trauma of the Thirties. “It is really a good news story,” said Prof Karen Dynan, former assistant US treasury secretary in the Obama era and now at Harvard University. “Disaster relief has been well designed and is working.”
Big employers in California – compelled to declare their intentions by state law – say that 93pc of lay-offs are “temporary”, a term that has legal and contractual implications under US labour laws. During the Lehman bust of 2008-2009 the jobs purge was almost entirely “permanent” as companies rushed to slash costs and restructure their businesses.
A “real-time” study by Arizona State University says the unemployment rate is already 20pc and fast approaching the headline levels of the Great Depression (lagged official data has yet to catch up). But this figure can be misinterpreted. Europe and the US are not as different as they look.
Europe has Kurzarbeit programmes. These entail subsidies for firms to hold on to idle workers through the crisis. The effect is to repress headline unemployment rates. The UK has its job retention scheme. Salaries are being covered by the state – partially or fully – in different countries until the lockdown is over.
America has reached more or less the same macroeconomic outcome by different means, using its flexible markets as a shock absorber and as a springboard for quick recovery later. The “corona-jobless” are receiving $600 (£480) a week in emergency aid on top of other (limited) benefits, which can amount to a rise in pay for poorer workers. It is surprisingly progressive for a Republican administration. This is not a repeat of 2008 when blacks and minorities – “last hired, first fired” – carried the brunt of the shock. Steven Mnuchin, the treasury secretary, is spearheading the response in concert with the Democrats on Capitol Hill, and with state governors. This “national team” is operating in a parallel universe from president Donald Trump’s surreal and contradictory ramblings each day. Most of the jobless and their families are able to roll over their health insurance through the federal Cobra scheme. Prof Dynan said there is broad “political and social buy-in” for the mix of emergency measures. This cuts across normal ideological lines. There are logjams, headaches and delays. The newly unemployed are struggling to navigate federal websites. Michigan’s state filing system crashed completely after the car industry shut down. Whole categories of laid-off workers have to telephone in person to secure aid but the lines are swamped. One woman in New York said she had to call 800 times before getting through.
Others say the money has not yet arrived. The self-employed are still falling through cracks. Hence the astonishing footage of thousands of cars lining up at a single food bank in San Antonio, Texas. “The aid is just not getting through. The system is creaking at the seams and overwhelmed,” said Prof Danny
Blanchflower, a labour economist at Dartmouth University and a former UK rate-setter. “A fifth of the country basically has no income. Nothing. Zero. These people are spending everything they have left on food and they can’t wait until September, or whenever, for the first cheque.”
Beth Ann Bovino, from Standard & Poor’s, said it will take years for unemployment to come down to pre-crisis years. “Turning on the US economy isn’t like turning on a light bulb,” she said. The chaos is understandable. Initial jobless claims each week have jumped to 153 times normal levels in California and Virginia, 171 times in Indiana, and 195 times in Michigan – where furious protesters have demanded an end to
‘Stock markets are pricing a rapid rebound on premise it is a one-off shock, followed by testing and tracing’
the lockdown, a few armed with semi-automatic rifles and sporting militia garb. Prof Dynan said most workers will be rehired quickly once the economy reopens, without lasting damage to America’s productive system, known as hysteresis.
“The unemployment rate will be back down to single digits by the end of the year. But many in vulnerable sectors like restaurants and travel will not get their jobs back and that is going to leave scarring,” she said.
The pandemic has been the coup de grâce for “old retail”. The department shopping chain JC Penney missed a bond payment on Wednesday and is now in default. It has furloughed most of its 90,000 employees. Its 850 stores may not survive. Nordstrom has warned of financial distress. Macy’s is exploring restructuring and has laid off nearly all of its 125,00 employees.
Stock markets are pricing a rapid rebound in the US. The premise is that the lockdown is a one-off shock, to be followed by a testing and tracing regime that keeps the virus contained. But that hi-tech solution may not be ready at sufficient scale in time.
The jobless relief measures run out after a couple of months. They are not set up for a long siege. So what happens if the country faces a second wave? “I fear that we will have to keep shutting down the economy. Unemployment could be near 30pc. There is potential for social disorder,” said Prof Blanchflower. It might no longer feel temporary as a cascade of defaults turns what began as an economic sudden stop into a systemic financial crisis as well.
Even a lesser sequence of partial lockdowns would drain business confidence and keep investment in deep freeze. Hank Paulson, treasury secretary during the Lehman crisis, says America will never be the same again. “The pandemic crisis has laid bare the fact that we have unsustainable levels of income disparity in the US, with too many people living paycheck to paycheck, afraid of the wolf at the door,” he said.