The United States economy is facing a tidal wave of long-term unemployment as millions of people who lost jobs early in the pandemic remain out of work six months later and job losses increasingly turn permanent.
The Labor Department said on Friday that 2.4 million people had been out of work for 27 weeks or more, the threshold it uses to define long-term joblessness. An even bigger surge is on the way: Nearly five million people are approaching long-term joblessness over the next two months. The same report showed that even as temporary layoffs were on the decline, permanent job losses were rising sharply.
Those two problems — rising long-term unemployment and permanent job losses — are separate but intertwined and, together, could foreshadow a period of prolonged economic damage and financial pain for American families.
Companies that are limping along below capacity this far into the crisis may be increasingly unlikely to ever recall their employees. History also suggests the longer that people are out of work, the harder it is for them to get back into a job.
To be sure, the labor market has bounced back more quickly than most forecasters expected in the spring. The unemployment rate dropped to 7.9 percent in September from 14.7 percent in April. But progress has slowed, and there are signs of more lasting damage. Through September, the economy had regained only about half of the 22 million jobs it lost between February and April.
High-interaction businesses like restaurants, theaters, casinos, conferences and cruises are struggling to fully reopen as the coronavirus continues to spread, leaving many workers out of jobs.
Disney announced this past week that it would lay off 28,000 U.S. employees as its theme parks struggle. Layoff notices filed with state authorities show that hospitality and service companies across the country, from P.F. Chang’s restaurant branches to Gap stores, are making thousands of long-term staff reductions. Airport bookstores in Pennsylvania and Tennessee are cutting jobs as travel dwindles. So are wineries and upscale sports clubs in California.
Airline job cuts run to the tens of thousands. American Airlines started to send furlough notices to 19,000 workers and United Airlines to 13,000 after a federal moratorium expired on Thursday. Those are on top of reductions at other carriers, and existing firings across the industry.
Altogether, nearly 3.8 million people had lost their jobs permanently in September, according to the Labor Department’s latest monthly survey, almost twice as many as at the height of the pandemic job losses, in April.
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As a result, the employment rebound, which was initially rapid, may begin to feel more like the grinding healing process that dragged on for a full decade after the Great Recession, economists warned.
“The risk is that you end up with people permanently detached from the labor market, and either you never get them back in or it takes you 10 years to get them back in, like it did the last time,” said Ian Shepherdson, chief economist of Pantheon Macroeconomics. “The economic consequences are that you depress future growth.”
The slow recovery from the Great Recession, when the tally of the long-term unemployed neared seven million, made it clear that extended spells out of work can haunt workers, locking them out of job opportunities or reducing pay.
Whether that penalty holds true in the pandemic-induced downturn remains unclear, but the economic repercussions of having a large number of workers sidelined will undoubtedly weigh on the United States’ economic potential and disrupt lives.
Jerome H. Powell, the Federal Reserve chair, has warned that a “significant group” of people may “still be struggling to find jobs” even as the labor market strengthens.
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Longer-term unemployment can be “very damaging to people’s lives and their working lives,” Mr. Powell said at a news conference this year.
The risk of permanent job loss weighs heavily on workers like MacKenzie Nicholson of Nottingham, N.H., who lost her job with the American Cancer Society in June after the pandemic cut into the organization’s fund-raising. Her husband, a service manager at a Jeep dealership, kept his job after a brief furlough, but his income is not enough to cover their monthly expenses.
Ms. Nicholson plans to start picking up gig shifts with DoorDash and Uber in the evenings, once her husband gets home from work and can take over watching their two young children.
“I’ll be saying goodbye to my husband when he gets in the door,” she said. “It won’t be ideal for our marriage.”
It’s hard for Ms. Nicholson, 30, to square the anxiety over meeting basic needs with the life she had one year ago, when she and her husband bought their first home, providing a sense of security. Now their mortgage payment feels like an albatross, and a simple trip to Target feels out of reach.
“My daughter ran out of toothpaste and I put it on the shopping list, and then realized we could use the sample bottles we get from the dentist to hold out for a few weeks,” Ms. Nicholson said. “I’m making disgusting casseroles with everything I have in the fridge so I don’t have to go grocery shopping.”
Lasting joblessness is a comparatively new problem in the United States. Europe, where social safety nets are more generous and labor rules are stricter, has long had high rates of extended unemployment. But economists once thought that the United States’ less restrictive, more dynamic labor market made it relatively immune. Even in the brutal recessions of the early 1980s, when the unemployment rate topped 10 percent, less than a quarter of job seekers had remained out of work longer than six months.
That has changed in recent decades, as the sluggish “jobless recoveries” that followed the past three recessions left a large share of workers unable to find jobs for months or years. In the aftermath of the Great Recession, nearly half of all job seekers had been unemployed long term. Many younger people dropped out of the job market altogether, while long-term unemployment for workers older than 50 stayed at high levels for years.
This is a very different crisis, both in swiftness and in breadth. Workers in entire industries were furloughed practically overnight, with little regard for their unique skills and performance. Employers may not fault future applicants for those lost jobs.
“It’s not clear to me that anyone’s going to hold it against you that you were an unemployed waiter for nine months,” said Jay Shambaugh, a George Washington University economist.
But there is mounting evidence that the long-term jobless will face a harder road back to work. In August, newly unemployed workers — out of work less than five weeks — were twice as likely to find jobs as those out of work more than six months.
Many people who aren’t looking for work now because they believe they are on temporary layoff may find that their jobs never return. They may be “frozen in place by the uncertainty of not knowing what the economy is going to look like,” said Thomas Barkin, president of the Federal Reserve Bank of Richmond.
If losses do turn permanent, it’s unclear how quickly workers will be able to shift into new roles. People with similar backgrounds tend to apply for similar jobs, which could lead to a glut of available workers in categories that lack the demand to absorb them.
Jose Martinez, 47, a houseman at the DoubleTree Metropolitan hotel in Midtown Manhattan for 26 years, remains hopeful he will retain his job. He was laid off in April, and despite several setbacks, he said he expects to return this coming week because his union contract requires that workers be brought back according to tenure. His wife also works at the hotel, but she has not been there for as long and is more likely to remain out of work longer.
“There are hotels that are closing, but it’s mostly the smaller hotels,” Mr. Martinez said. “I have faith that I’ll be back at work.”
Nathaniel Claridad is less certain what the future holds, though he, too, hopes for a return to normalcy. He was acting in a show in Florida when Broadway closed. Days later, the artistic director informed him and the rest of the cast and crew that they were free to go — they were shutting down as well.
Fast forward six months and Mr. Claridad, who had another show and a concert postponed and saw his job selling tickets at a Midtown theater wilt away, remains unemployed. He’s current on rent for the Washington Heights apartment he shares with his employed partner, and he’s hopeful that his shows will take place in 2021 — but he’s starting to pick up Zoom directing gigs here and there, and he is applying to teaching jobs.
“It’s getting to the time now where I have to decide what to do, in terms of income,” Mr. Claridad, 38, said. But there are downsides to looking for work when your colleagues with similar skill sets are doing the same.
“Talking with friends, it feels like the market is saturated with people like me who are looking for another source of income,” he said.
Labor supply also remains an issue. Employers report that many workers, including those who are older, are nervous about returning given the health threat. People with children, particularly women, are struggling to return to jobs because they have limited child care options with schools and day cares all or partly closed.
Women’s participation rate — the share working or looking for work — dropped last month to its lowest level since 1987, excluding April and May this year. The household employment survey suggested that they might have lost more than 140,000 jobs in September, though a separate survey of businesses showed them still eking out gains.
The people most at risk of getting stuck on the sidelines in this crisis are in many cases those least prepared to take the hit.
Minority groups have seen bigger spikes in unemployment during the pandemic era — and getting back to work is taking them longer, suggesting that they are likely to make up a disproportionate share of the long-term unemployed.
Black joblessness jumped higher earlier in the recession and is declining more slowly than that for white workers: It stood at 12.1 percent in September, compared with 7 percent for white adults. Hispanic unemployment jumped at the onset of the crisis but is declining relatively quickly. Even so, it stood at 10.3 percent last month.
Those groups hold far less wealth, so they are less financially prepared for a long period out of work.
For now, unemployment is falling across demographic groups as layoffs end, and some economists are hopeful that the rebound will continue — though most warn that recovery will remain incomplete until the virus is under control.
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Mr. Barkin at the Richmond Fed is urging communities and policymakers to think about retraining options now, in recognition that some share of the work force may find that its old skills are obsolete.
“It’s a virtual certainty that there are going to be large scarring effects for workers in certain industries,” said Alicia Sasser Modestino, an economist at Northeastern University. “What will those workers do with the skill sets that they have?”
Jeanna Smialek writes about the Federal Reserve and the economy. She previously covered economics at Bloomberg News, where she also wrote feature stories for Businessweek magazine. @jeannasmialek
Gillian Friedman is a business reporter covering bankruptcy, economics and general business news. @gillianreporterA version of this article appears in print on Oct. 4, 2020, Section A, Page 1 of the New York edition with the headline: For Many Jobless, ‘Short-Term’ No Longer Fits. Order Reprints | Today’s Paper | Subscribe