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May unemployment likely to exceed 20%, hitting Latino, Black workers hardest

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Rebecca Valli

On Friday, the Bureau of Labor Statistics (BLS) will release unemployment figures for the month of May. The report will shed light on a crucial period of coronavirus-related lockdowns, mid-April to mid-May, and the devastating economic consequences for workers across the country.


Daniel Alpert

Senior Fellow in Financial Macroeconomics at the Law School

Daniel Alpert, senior fellow and adjunct professor of macroeconomics at Cornell Law School, says that while the overall unemployment rate may surpass 20%, losses of jobs are likely to disproportionately hit Black, Latino and Hispanic workers.

Alpert says:

“The BLS’s Employment Situation report will provide the first full view of the overall severity of the COVID-19 crisis. With an aggregate of 20.85 million jobs lost through mid-April, the May survey read will likely show the loss of an additional 10.0 to 12.5 million jobs – about 95% expected to be in the private sector and about 85% of those in production and non-supervisory categories (down from 88% the month prior, as we saw culling of some managerial jobs later in the crisis).

“The unemployment rate is expected by most analysts to exceed 20%. But we caution that the U-3 headline rate will be an increasingly unreliable data point because many respondents, when asked if they were actively seeking work as of mid-May would (as last month) have responded in the negative, thus removing themselves from the Labor Force – which is the denominator of the U-3 unemployment rate – simply because there was no work to be had and no jobs worth looking for with the lockdown. Observers and media would be far better off focusing on the broader U-6 unemployment rate to get a full picture of this period. The employment-population ratio, which fell to 51.3% from 60.0% in April, will also show further declines, dropping to a likely historic low.

“As we saw in April, we will again see hourly wages and work hours ‘mysteriously’ rise for May. Really not a mystery at all, however. The layoffs and furloughs have hit low-wage, low-hour jobs, on which the U.S. economy had become so dependent, far more severely than their higher paying counterparts. The eradication of these low paying jobs leaves us with higher average hourly wages, weekly hours and weekly incomes – which in this case is not good news at all.

“Given massive social disruption caused initially by the pandemic and exacerbated by the recent events attendant to the death of George Floyd in Minneapolis and the protests evolving from that heinous act, attention should be paid to the disproportionate impact of this crisis on the Black/African American population. The employment-population ratio for Black/African Americans already fell below 50% (48.8%) as of the April BLS data, and it can be expected now to fall to post-war historic lows. It should be emphasized that this is a population of 33.3 million – 13.3% of total civilian population. Add to that Hispanic and Latino members of the population (44.0 million) which have already seen their employment-population ratio fall to 51.3% and their unemployment rate skyrocket to 18.9% (from 4.4% in February), higher than that of Black/African Americans at 16.7% (up from 5.8%). For white Americans, unemployment was 14.2% in April. This crisis is disproportionately impacting racial and ethnic minority groups enormously, a phenomenon which we expect to see worsen in the May data.”

 

Visiting senior scholar at Cornell University’s School of Industrial and Labor Relations

Erica Groshen

Visiting Senior Scholar at the School of Industrial and Labor Relations

Erica Groshen, is a senior extension faculty member at the Cornell University School of Industrial and Labor Relations. She is a former commissioner of the U.S. Bureau of Labor Statistics and vice president of the Federal Reserve Bank of New York, and has written extensively on how economies can recover from recessions

 

Groshen says:

“In the best-case scenario, the Employment Situation for May will be the job market trough of the COVID-19 downturn. That is, the report will show the highest unemployment rate and the largest cumulative job losses of the recession. The time period reflected (mid-April to mid-May) covers the period of maximum shutdowns.

“May's unemployment rate and payroll job losses will likely increase substantially because many workers were newly out of jobs from mid-April to mid-May – as can be seen in the large number who filed for unemployment insurance benefits during that time. The unemployment rate rise may be augmented for another reason, too. The BLS has reported a problem in how COVID laid off workers interpreted a particular question in March and April. It seems that many resisted thinking of themselves as on layoff. They referred to themselves as on ‘other’ leave (like illness, family leave, or vacation, but unspecified). BLS did not change the answers it received in those two previous months. However, the agency noted the issue and estimated that the April unemployment rate would have been almost 20% if all the workers had been appropriately classified. For this report, I assume that BLS has alerted its field staff to the issue and issued new guidance for interviewers to avert this problem. If they are successful, May's unemployment rate will rise dramatically again and approach or exceed the 25% last seen during the Great Depression.

“Since mid-May, most states have begun phasing out the restrictions slowly, allowing some workers to return to work. Furthermore, substantial Payroll Protection Program funds were distributed in May, funding the recall of many workers. So, in June, payroll jobs could begin to rebound and the unemployment rate could begin to recede. That assumes, of course, that virus infection rates, civil unrest, or lack of fiscal policy support do not derail the nascent recovery.”

Kevin Hallock

Dean of Cornell SC Johnson College of Business

Kevin Hallock, dean of Cornell SC Johnson College of Business and an expert on labor markets and issues of wages and compensation, says he would't be surprised if the monthly unemployment number is over 20 percent, as companies are seeing enormous losses of revenue and many must cut costs to survive.

 

Hallock says:

Employment is a major cost for most organizations, and these are expenses that can be cut quickly, but with incredible pain. These are deeply difficult days for the labor market in the United States and throughout the world. This labor market fell off a cliff and it happened all over the world and immediately. Large numbers of jobs lost were formally ‘temporary’ cuts but as companies realize that their revenue isn’t immediately coming back – or worse yet companies fail – many of these will turn into permanent cuts.

“Just a few months ago, businesses were clamoring to find workers and keep them in their organizations. Unemployment was at a 50-year-low and, by some measures, the economy was clicking along. But not everyone was enjoying the expansion equally. Adjusting for inflation, the median wage and below in the United States over the past 40 years has been roughly flat. So even in the midst of a big expansion and a tiny unemployment rate, many workers struggled. Add a massive spike in unemployment and I don’t see upward pressure on the wages of those workers. In fact, I expect it may get worse.

“I think it may be a time for a big reset on not just how much workers are paid but even how they are paid. Just as we have seen an almost immediate change in the way lots of office work gets done (using technology from home), I think people are willing to think differently. The ways people are paid (mostly for their time; by the hour, day, year) are not necessarily the best way to pay most employees. But it is certainly convenient and has become a norm. For some time, I have thought that technology would be used to think differently about how we pay people, and I predict some of this may happen sooner than originally expected.”


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