10 Million Jobs Lost, and Millions More to Come

10 Million Jobs Lost, and Millions More to Come

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Plus: States face a coronavirus fiscal storm
Thursday, April 2, 2020

Two Weeks, 10 Millions Jobs Lost

More than 6.6 million Americans applied for unemployment benefits last week as the coronavirus pandemic ground the economy to a halt, a staggering number that’s nearly double the record set the week before, which itself obliterated the previous high from 1982. The federal government first began tracking new unemployment claims in 1967.

In all, some 10 million Americans lost their jobs and applied for government aid over the final weeks of March, according to Labor Department data released Thursday. “The past two weeks have erased nearly all the jobs created in the past five years, a sign of how rapid, deep and painful the economic shutdown has been on many American families who are struggling to pay rent and health insurance costs in the midst of a pandemic,” The Washington Post’s Heather Long reports.

The numbers are also a sign of just how vital a lifeline the expanded unemployment benefits included in the newly enacted $2.2 trillion coronavirus relief bill will be — and a clear indication that more help will be needed.

“Given the extraordinary deterioration of the labor market in a matter of weeks, federal policymakers will absolutely need to come back and provide more desperately needed relief, and more support for the recovery once the lockdown is over,” economist Heidi Shierholz of the left-leaning Economic Policy Institute tweeted. Other EPI economists estimate that 3.5 million workers may have lost their employer-provided health insurance over the last two weeks.

The real number of lost jobs is probably even higher: Economists warn that the new data, as grim as it is, probably doesn’t capture the full number of Americans who have lost their jobs since many of those newly unemployed have yet to file a claim and many state unemployment offices are struggling to keep up with the surge of new filings. Also, gig workers and those who are self-employed weren’t eligible for unemployment benefits until the coronavirus relief bill was signed into law at the end of last week.

Economists at Goldman Sachs this week said they expect new claims to remain high throughout April, especially as businesses and workers learn more about the expanded unemployment insurance benefits provided in that relief bill, including $600 a week more on top of the usual state benefits. They projected that the surge of new claims would total nearly 18 million by the end of this month.

More generally, economists say that the unemployment rate, which recently hit a 50-year low of 3.5%, has likely surged to around 10% or higher. “With another week of huge job losses now underway we'd guess that the true unemployment rate right now is about 12.5%,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote to clients. “It will rise above that level, though, as job losses appear to be continuing at an astonishingly rapid pace.”

During the Great Recession, the unemployment rate peaked at 10% for one month, October 2009.

Shepherdson and other economists say that the total number of layoffs in the coming months could climb as high as 20 million, resulting in an unemployment rate as high as 16%.

“We’ve never seen anything like this,” said Aaron Sojourner, a labor economist at the University of Minnesota, told the Post. “The scale of the job losses in the past two weeks is on par with what we saw in two years during the Great Recession.”

Pelosi Announces Committee to Oversee Coronavirus Response

House Speaker Nancy Pelosi on Thursday announced the creation of a special bipartisan committee to oversee the Trump administration’s coronavirus response and its handling of the $2 trillion economic relief package passed last week.

“Congress has taken an important step in meeting this crisis by passing three bills with over $2 trillion dollars in emergency relief,” Pelosi said in a letter to House members. “We need to ensure those tax dollars are spent carefully and effectively.”

Pelosi said the House Select Committee on the Coronavirus, to be led by House Majority Whip Jim Clyburn (D-SC), “will root out waste, fraud, and abuse. It will protect against price gouging and profiteering. It will press to ensure that the federal response is based on the best possible science and guided by the nation’s best health experts.”

Clashes over oversight: Congressional Democrats worked to include oversight measures in the rescue package, including a requirement for a special inspector general, appointed by the president and confirmed by the Senate, to report to lawmakers on business loans made under the legislation. But in a signing statement issued when he signed the bill into law, President Trump pushed back on the oversight provisions and indicated that he believes the new inspector general needs his permission in order to provide reports to Congress.

Republicans also questioned Pelosi’s move to create a new committee. “This seems really redundant,” House Minority Leader Kevin McCarthy (R-CA) told reporters on a call Thursday, noting that the House already has several committees with jurisdiction over the coronavirus package. “Does the speaker not trust the [House] Oversight Committee?” McCarthy reportedly asked.

McCarthy also raised concerns about Pelosi’s selection of Clyburn to head the panel, since the South Carolina Democrats reportedly had told colleagues that negotiations over a third coronavirus bill were “a tremendous opportunity to restructure things to fit our vision.” McCarthy also expressed concerns about how the new committee would be created and said that there needs to be a floor vote on the new panel, which could be a problem since lawmakers are away until at least April 20.

Quote of the Day

“At no level am I seeing anyone focusing on the long game of where we need to be. Everyone’s just picking dates out of the air. We’re focused on the fire that’s occurring right now, which we need to be doing, but we also have to focus on building this massive infrastructure.”

– Aaron Carroll, a professor at the Indiana University School of Medicine, in an article at The Hill about worries among epidemiologists that the failure to test and monitor people at scale in the U.S. during the coronavirus pandemic could result in a series of lockdowns that further destabilize the economy.

States Prepare for Coronavirus Fiscal Storm

State budgets will be crushed by the coronavirus crisis as millions of workers and businesses stop paying taxes, says Josh Goodman of Pew Charitable Trusts. But state officials are going to have to wait a few more weeks until they know just how bad their fiscal situations will be.

Personal income taxes and sales taxes are the two largest sources of revenue at the state level, and both will take a serious hit as business reduce hours or close up shop entirely and workers lose their jobs.

Federal aid is in the pipeline, with $150 billion set aside for states and localities in the $2.2 trillion aid package signed into law last week. But some governors are saying that won’t be enough.

Colorado is one state seeing a rapidly deteriorating fiscal picture, according to Bloomberg Tax. Two weeks ago, state officials projected a $750 million shortfall in revenue this fiscal year and next as a result of the pandemic. A week later, that number nearly doubled to $1.4 billion

New York, at the epicenter of the crisis, is facing even larger shortfalls. Gov. Andrew Cuomo says the state expects to lose between $10 billion and $15 billion in revenues in the fiscal year starting April 1. In just one week, the state spent $600 million on medical supplies, according to Bloomberg News.

States face legal limits: Most states are required to balance their budgets, and only a handful can carry debt from one year in the next. That leaves three options when the economy craters: using federal aid to replace lost revenues; dipping into rainy day funds, to the extent that they exist (see the Tax Foundation’s review here); and enacting budgetary austerity in the form of reduced spending on everything from education to highway repair. Accounting tricks such as shifting the schedule of payments can provide a cushion, but the wiggle room is limited.

The timing is terrible: States tend to have low cash balances in March as they prepare for an influx of tax payments in April, but as many states follow the IRS in delaying tax day until July, those payments are now just a trickle.

In addition to the operational challenges, the shortfalls will make it harder to create budgets for the next fiscal year, which starts on July 1 in most states. Budget committees typically rely on revenues in January and February as the basis for the next year’s budget, but that won’t work in this context. “It’s been challenging,” said Colorado State Senator Rachel Zenzinger. “We had the budget about 98% done before the virus hit, so we’re going to have to more or less scrap many of the decisions we already made and start over.” Social distancing requirements in state legislatures will make the process that much harder.

Time for a debt jubilee? The size of the problem is so great that some experts are kicking around the idea of large-scale debt forgiveness. Michael Hudson, an economist at the University of Missouri at Kansas City, told Marketplace Thursday about the ancient tradition of the debt jubilee, in which all debts are forgiven on a regular basis in order to reduce economic volatility and social disorder.

“The reason your cancel the debts is you want to preserve stability,” Hudson said. “The states and localities, New York City and New York state, have to pay unemployment insurance, and all the other costs associated with the coronavirus out of their own revenues, and yet they have to balance the budget. If New York state and City have to repay all of the debts that they run up, then you’re going to have the whole character of government change. And in order to prevent the economy from being distorted, you have to adjust [and] simply say these debts won’t be paid.”

Until then: Short of a revolutionary debt holiday, states will have to start adjusting to the mounting revenue shortfalls and rising social welfare expenditures, with cutbacks being one likely result. “Lower taxes and increased demands for funding will impose severe strains on state and local budgets,” researchers at the Brookings Institution wrote last week. “Furthermore, with most state fiscal years ending June 30, and with most states required to enact budgets that they expect to balance, it is likely that state and local governments will start paring back spending relatively soon.”


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