Authored by Gordon Gray, AAF’s
Director of Fiscal Policy
The highest monthly job loss on record is over 1.9 million, which
occurred in September of 1945, marking the demobilization from World War
II. The largest single-month increase in the unemployment rate occurred
in October of 1949, when the unemployment rate jumped 1.3 percentage
points from 6.6 percent to 7.9 percent. When the employment report is
released at 8:30 this morning, there is reason to suspect that these
historical “superlatives” will be exceeded by an order of magnitude.
But we already know that. The grim predictions above are safe
assumptions, resting on higher frequency UI claims data, which ordinarily
cannot be relied upon to paint a telling picture of the labor market.
Unemployment claims data typically only pick up layoffs and are blind to other
critical flows in the labor market, most notably hiring. Before the
pandemic, these flows typically netted to tens of thousands to
low-hundreds of thousands in a given month. But the scope and scale of
the necessary shuttering of the economy is such that those net positive
hires will be swamped by gross job losses. Since the survey that informed
last month’s job numbers, 26.5 million new unemployment claims were filed
– and last month’s numbers were still near historic losses at the time.
This is not to say that hiring has completely ceased. Some research
suggests that despite significant net job losses, there remains as many
as 3 new
hires for every 10 layoffs. Even if that ratio holds, it still
suggests a net employment loss of 18.5 million – or nearly 10 times the
highest single-month loss previously recorded.
Divining the unemployment rate is more of a challenge and largely hinges
on the disposition of the unemployed. For context, assuming that
unemployment jumps 26.5 million and that, implausibly, there is no
decline in the labor force, unemployment would exceed 20 percent. The
labor force is the sum of the employed and the unemployed; the
unemployment rate is the percentage of the labor force that is
unemployed. But to be considered unemployed, one must be looking for
work. Policymakers correctly expanded
the eligibility for unemployment benefits beyond those
laid-off. Accordingly, some of these workers receiving benefits may not
show up as unemployed, but rather as having left the labor force. Today’s
report will show some of both. Before last month, the single-largest
monthly decline in the labor force was just over 1 million and occurred
in October of 2013. That record will be smashed as well.
Confounding the measurement of the devastation is the nature of
measurement – survey responses. These surveys are highly robust, and the
results are statistically cleansed. But as the Bureau Labor
Statistics (BLS) notes, “If there is a substantial departure from
historical patterns of employment changes in net business births and
deaths, as occurred from 2008 into 2009 during the 2009
benchmark, the model's contribution to error reduction can
erode.” BLS has stated that they will update the model to account for the
recent and aberrant labor market movements. But from a practical
perspective, employers and individuals are experiencing a disruption that
is by some lights an order of magnitude worse than anything we’ve ever
seen. This is to say that today’s first real look into the labor market
devastation caused by COVID-19 will evolve, and its accuracy should be
considered accordingly.
For a guesstimate, the magnitudes of these losses are so large that
estimating these indicators to any degree of certainty would not be
credible. Nevertheless, I’m estimating that the BLS will report that in
April 23 million Americans lost their jobs, and 15.5 percent of the labor
force was unemployed. For earnings, the composition of the labor market –
concentrated job losses among lower-wage earners – may push up the
earnings print. This guesstimator is assuming an 11-cent gain for a 3.5
percent year-over-year gain.
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