Eakinomics: Detach, yes. Reattach?

Eakinomics: Detach, yes. Reattach? Yesterday’s big news was that another 5.2 million Americans filed new claims for unemployment insurance (UI), bringing the 4-week total to 22 million workers who have lost their jobs. Clearly, the labor market has shown a great ability to quickly detach employees from their employers. The important question is, how fast will it be able to do the reverse in the future? There are some reasons to think that people could return to work in the near future. The first workers to be laid off were likely employees in retail, restaurants, and other lower-skilled settings. This was likely augmented by the fact that the temporary (until the end of July) federal unemployment bonus made unemployment a more lucrative option than continued work for many. When both the employer and employee are better off with the employees on the federal budget, it is not surprising that they were able to arrange that quickly. While hard data are not available, anecdotally, the evidence from the Worker Adjustment and Retraining Notification (WARN) Act notifications indicates that employers are identifying layoffs as temporary furloughs and not terminations. The WARN Act requires employers with 100 or more employees to provide a 60 calendar-day advance notification of plant closings and mass layoffs of employees. So, the good news is that the separations may largely be of mutual financial convenience and intentionally temporary. That would point toward relatively quick reattachment. Of course, there is always bad news as well. To begin, it is not obvious how many of those same malls, theaters, arenas, and other populated places of commerce will re-open quickly – or at all. People are likely to be reticent to venture out right away, and the pandemic has probably accelerated some shifts to streaming first-run movies, on-line shopping, and other reshaping of the patterns of commerce and employment. And, again anecdotally, The Wall Street Journal reports that the later waves of layoffs are across the economy and in higher-skill occupations. Labor market adjustments to new sectors and shifting demand for skills are a slower process and would point to slower reattachment. What is clear at this point is that reattachment will be determined by success in stopping the spread of the virus – the public health mission – and spurring the pace of economic growth. The top priorities should be testing, treatment, and vaccines for the former, and permanent, pro-growth policies for the latter.