This is how many coronavirus pandemic job losses are at risk of becoming permanent

Photo: Bonnie Kittle

The onset of the coronavirus pandemic in the United States brought a swift change to the promising unemployment numbers In December 2019, the unemployment rate was 3.5%, which was the lowest since 1968, according to The Balance.

As of May 28, 40 million people, the equivalent of one in four US workers, had filed for unemployment benefits. While the hope is that jobs will return to form strong job market as the spread of the virus slows and the country begins to open back up, a new analysis from Bloomberg suggests that millions of jobs are at risk of never coming back.

Reallocation shock may stop jobs from returning

While the hope is that government stimulus will hold over businesses and spark a revival in hiring, meaning that furloughed workers will return to their previous employers, there is a risk of “reallocation shock.”

Reallocation shock from the coronavirus pandemic would mean that companies, or even entire industries, could suffer lasting or permanent damage. As a result, jobs lost during the pandemic won’t come back and the unemployment rate will remain high. If jobs don’t come back, workers would be forced to retrain or relocate and governments will have to do more than offer stimulus to companies.

Last week Federal Reserve Chairman Jerome Powell discussed the possibility of interest rates remaining near zero until 2022, in part due to the record-high unemployment numbers.

There will be “well into the millions of people who don’t get to go back to their old job,” Powell said. “In fact, there may not be a job in that industry for them for some time.”

New research from Bloomberg Economics looked at the  relationship between hiring, firing, openings and unemployment. The research estimates that 30% of the job losses in the country from February to May are the result of a reallocation shock.

The analysis suggests that the labor market will recover swiftly at first, but level off with millions of working Americans still unemployed.

Unsurprisingly, workers in the hospitality industry are most at risk of staying unemployed even as the economy recovers. Jobs in retail, leisure, education and health are also among the industries in which jobs are currently at risk.

The pandemic has increased the challenges for brick and mortar companies that are threatened by e-commerce platforms, and investors across different sectors are betting on a shift in profits that could copy what happened after the global financial crisis of 2008. Less profits usually means less jobs.

Another study, published in May by the Becker Friedman Institute at the University of Chicago, estimated that 42% of recent U.S. layoffs will be permanent.

Other studies carry similar warnings. Research published in May by the Becker Friedman Institute at the University of Chicago estimated 42% of recent layoffs in the U.S. will be permanent.

“There’s a massive reallocation shock,” Nicholas Bloom, professor of economics at Stanford University and one of the authors of the study, told Bloomberg.

The recession will hit different sectors differently, with some benefitting and some bearing the brunt of the hardships.

What can be done about this?

The phenomenon puts governments under pressure to craft policies which help viable firms to survive and workers navigate to different jobs, but which ideally don’t prop up companies that are no longer sustainable and just drain resources.

The government is now under pressure to craft policies that will help viable firms survive but don’t simply prop up companies that are no longer sustainable. In a study last week, the Peterson Institute for International Economics said that the unique shock from the coronavirus means that governments will likely need to do more to protect businesses and workers than if this were a normal recession.

The institute recommended wage subsidies and continued credit guarantees for new loans.

The challenge is definitely unique, as the Bloomberg Economics research shows. The research found that about half of the U.S. job losses come from a combination of the pandemic lockdown and weak demand, 30% came from the reallocation shock, and 20% from the high unemployment benefits that have encouraged workers to stay home.

Jennifer Fabiano is an SEO reporter at Ladders.