Permanent job losses rose sharply in August, the Labor Department said in its monthly employment report Friday, suggesting that the risk of a long-lasting recession is rising.
The number of permanent job losers soared to 3.4 million in August, according to the Labor Department, up from roughly 2.9 million the month before.
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Earlier in the pandemic, the vast majority of job losses were classified as temporary. Tens of millions of retail workers, bartenders, restaurant servers, and movie theater workers were sent home with the hope that they could be called back. In the best-case scenario, those workers would have been kept afloat with federal government relief and then returned to their old jobs in a matter of weeks or months. In that scenario, both employers and employees would have been spared the disruption that comes when the employer-employee relationship is broken.
But that optimistic scenario is slipping out of reach. Of the 22.2 million jobs that were lost from February to April, economywide, only 11.6 million have been regained.
“It’s COVID,” said Robert Frick, a corporate economist at Navy Federal Credit Union. “If [infection] levels continued to go down like they were in April and May, the number of permanent job losses would be much, much lower than they’re going to be.”
In fact, if all the 5.4 million people who reported being temporarily unemployed since February were immediately brought back to work, the unemployment rate would still be 6.6%, according to an analysis by the Peterson Institute for International Economics.
Of course, Friday’s jobs report was good news in the sense that it showed 1.4 million jobs gained, a number that would have been a record if not for the record-setting pace of job growth in the past few months. And President Trump touted the fact that the unemployment rate plunged unexpectedly to 8.4%, below where Federal Reserve officials expected it to be at the end of the year.
Yet, the longer the pandemic cuts into normal commerce, the worse the fallout will be. Many businesses cannot survive prolonged closures or sustained decreases in business, said Mark Hamrick, a senior economic analyst at Bankrate.com.
“Businesses tend to be able to motor through for a short duration, but few are able to persist through one that is six months old,” he said. “They’re not set up to withstand multiple months of significant decline in sales revenue.”
When businesses first began laying off workers at the start of the pandemic, roughly 90% of them were temporary, said Michael Hicks, the director of business and economic research at Ball State University.
Hicks also noted that, at first, many businesses did not want to cut employees loose permanently. Before the disease hit the United States, the nation enjoyed full employment, and that made hiring the right person difficult.
“Many of these employers would have been very reluctant to tell their workers that this was a permanent layoff,” he said, adding, “it was a tight labor market … The last thing they wanted to do was [fire] somebody.”
At the outset, economic shutdowns were expected to last weeks, but when they turned into months, businesses were forced to let workers go permanently.
“If you look back at March and April, there was a lot of optimism about a short duration pandemic, so I think a lot of businesses thought that they could muscle through,” Hicks said.
Frick said that, of the current jobless rate of 8.4%, 2 to 4 percentage points represent workers who permanently lose their jobs. That might sound insignificant, but it’s not.
“That’s millions of people, so we’re going to be facing a real tough slog in getting the unemployment rate down [further] because a lot of people overestimated the number of temporary job losses,” he said.
“The sooner we get the virus under control, the more people take it upon themselves to help with the project of getting the virus under control, the faster we’ll get back to a labor market that benefits all Americans,” Federal Reserve Chairman Jerome Powell said Friday in an interview with NPR.
