It’s impossible to overstate how awful yesterday’s figures for last week’s initial jobless claims in the US were.
For reference, they made the weekly claims that occurred during the global financial crisis pale into insignificance, a mere blip:
While the scale surprised many people, we knew we would be in for a sharp shock of the sort not witnessed in modern times.
What also needs to be kept in mind is that however severe the short-term economic loss, the pandemic needs to be contained.
At the same time, with governments everywhere taking actions that curtail citizens’ liberty — including their right to work — people need to be properly compensated.
It was extremely helpful that Congress passed its $2tn stimulus programme the day before these figures came out. There will be a lot of people concerned about both their health and keeping a roof over their heads, and measures to bolster the social safety net will ease the pressure somewhat. Our fear now is that the amount might prove insufficient if jobless claims continue to rack up at an alarming rate.
No one knows how the pandemic will develop. It is impossible to say whether it the caseloads will continue to shoot up, or if the warm weather will help contain it. Another uncertainty is whether we are in the midst not of a short, sharp economic slump but of a fundamental paradigm shift from which an entirely new global economic order will emerge.
All of which means we have no idea how bad will the labour market get. Economists have, however, looked into some of the parameters that could define the scale of the job losses. We’re going to focus on two here: by Morgan Stanley and the US Federal Reserve of St Louis.
Morgan Stanley’s forecast for this week’s jobless claims was, at 3.4m, almost spot on. So what do they expect in the coming weeks and months?
For the second quarter, they are predicting an unemployment rate of 12.8 per cent — the highest since modern records began in the 1940s. The job losses are expected to be in the sectors labelled in red:
Meanwhile, a self-described “back of the envelope” forecast from the St Louis Fed is even gloomier. In a note published earlier this week it said it expects unemployment to rise to 32.1 per cent, or 52.81m people, over the current quarter. That would mean a staggering 47.05m people losing their jobs over those three months.
How do it get to this figure? It’s based on two earlier pieces of research. One is a blog post by one of its economists, Charles Gascon. In the post, Gascon identifies 66.7m workers in what he terms “high risk occupations”:
The other paper is by economists Fernando Leibovici, Ana Maria Santacreu and Matthew Famiglietti, and focuses on the number of contact intensive occupations, finding a total of 27.3m jobs qualify:
The 47m figure is the average of the two estimates — that of 66.8m workers at risk, and that of 27.3m.
To add to the disastrousness of the situation, Gascon points out the most vulnerable also tend to be paid less. The average annual earnings of the low-risk occupations is $64,600, about 75 per cent higher than earnings in the high-risk occupations, at $36,600, he says.
All of these estimates come with a huge warning.
We are in uncertain times that make economic conditions even more difficult to predict than usual. The St Louis Fed acknowledges that the jobless count could come in at any point between a bad-but-manageable 10.5 per cent (a scenario using the lower estimate where high contact workers in education and healthcare hold on to their jobs) to a truly terrifying 40.6 per cent, if almost all of those Gascon’s deemed as high risk lose their job.
For better or worse, what is important right now is that government in the US and elsewhere readies preparations for even more help for the world’s workers.