Labor market indicators suggest that the early job losses of the pandemic are increasingly becoming permanent, putting the long-term health of the economy in further doubt.
“To the extent that the data are true, they say you don’t see full recovery in 2020 for sure, and 2021 is probably a lot of work too,” said Doug Holtz-Eakin, president of the center-right economic think tank the American Action Forum and a former director of the nonpartisan Congressional Budget Office.
At the start of the pandemic, an optimistic 60% of employers surveyed by ManpowerGroup expected hiring to return to full employment levels by the end of this year. This is no longer the case, as 62% now have no plans to hire, according to the company’s third-quarter survey.
“It’s becoming increasingly clear that the second half of the year will not rebound anywhere near our pre-Covid forecasts,” Vox Media Chief Executive Jim Bankoff wrote in a memo to staff, as reported by the Wall Street Journal.
Full employment is generally thought to occur when the jobless rate is around 4% or at the lowest possible level that won’t increase inflation. It does not mean that every worker has a job. Before the coronavirus infected the nation, the economy enjoyed an unemployment rate at or below 4% beginning in early 2018, but then unemployment skyrocketed to 14.7% in March.
Many of the jobs lost early in the pandemic were thought to be temporary and that rehiring would return quickly. However, with spikes in the virus forcing several local economies to shut down and with millions of businesses permanently closing, many of those fleeting job losses could now be gone for good, according to a report by a trio of economists.
Their research indicates that, of the layoffs occurring between March 1 and mid-May, one-third or more of them will be permanent, meaning workers won’t return to their jobs at their previous employers.
One of the report’s authors, Jose Maria Barrero, told the Washington Examiner that their projection was based on employers needing to downsize or close permanently in the coming months because of the virus.
Barrero, who teaches finance at Instituto Tecnologico Autonomo de Mexico, co-authored the report with Nick Bloom and Steven Davis, economists at Stanford University and the University of Chicago, respectively.
Davis said that the ratio of temporary layoffs becoming permanent job losses would likely rise if the pandemic was not controlled and the economy continued to suffer.
“We’re kind of past the stage where we’re quickly recalling workers to their old jobs … and getting to the stage that people will need to get new jobs at new companies or in new industries,” he told the Associated Press.
Holtz-Eakin said that finding a job outside a worker’s immediate experience could be time-consuming and would likely add to their unemployment stint.
“If I used to be a waiter, and now I have to go find a job somewhere else, and it turns out to be working at an Amazon fulfillment center, that takes a while,” he said.
Other indicators also suggest that temporary layoffs could become permanent job losses as employers fail to rehire workers and delay full employment.
Goldman Sachs projected in July that absent another relief bill, only 16% of business owners are very confident that they can maintain payroll. That same report found that 63% of small-business owners say that less than 75% of their pre-pandemic revenue has returned, which suggests that recalling all staff might not be necessary.
The Peterson Foundation in June released a national poll revealing that 1 in 5 people in the United States was laid off or furloughed, and 33% of them do not expect to be rehired or retained by their former employer.
A policy brief released Aug. 6 by the California Policy Lab found that fewer laid-off workers in that state expect to be recalled by their employers than when the pandemic started.
“We find that 61% of new claimants in the last two weeks expect to be recalled, down from 90% of those filing in late March,” the report states.
Other economists think that it is too soon to tell the number of jobs that will be permanently lost.
Holly Wade, the director of research and policy analysis at the National Federation of Independent Business, thinks that unemployment will remain high, but she is not sold on the number of job losses that are permanent.
“We’re certainly going to see elevated levels of business closures and permanent job losses … but the degree to whether they’re temporary versus permanent is still really unclear,” she said.
Liz Hanke, a labor economist with the right-leaning Heritage Foundation, said it is unclear how many temporary job losses will eventually become permanent.
“It’s hard to say how many jobs will be regained or permanently lost,” she said.
Hanke highlighted the recent decline in the unemployment rate, from 14.7% in April to 10.2% in July, and weekly jobless claims dropping below 1 million for the first time since the pandemic as signs that workers are being rehired.
“I think these numbers say a lot, and they really tell us that people are getting back to work and the economic recovery is happening,” she said.
