Five Weeks of Job Losses Erases 11 Years of Gains

Another 4.4 million Americans filed for unemployment benefits in the week ending April 18th, putting the five-week tally at 26 million. To put that astounding number into perspective, it has taken just five weeks to sideline the same number of workers as jobs created since 2009. 26 million filings also reflect a 16 percent drop in household employment, which means that when the government reports the monthly data for April (on May 8), the unemployment rate could be as high as 20 percent, which would be the highest monthly reading since the Depression.

It’s cold comfort that the number of new claims for unemployment is trending lower, because there are nearly 16 million workers receiving unemployment benefits (referred to as “Continuing Claims”), that’s nearly 2.5 times the prior record of 6.6 million set in 2009. And despite everyone’s hope/desire for both the health and financial pandemic to pass quickly, it’s going to take a while to get millions of Americans back to work.

As job losses mount, Congress agreed to another $484 billion to replenish a portion of the CARES Act that focuses on small businesses. The Small Business Administration’s original $349 billion Payroll Protection Program (PPP) was depleted in just 12 days, during which the SBA had approved more than 1.66 million loans for more than $342.2B, according to an agency report. In the subsequent days and weeks after the original funds ran out, there were numerous reports of big companies that had existing relationships with banks getting first dibs.

Some of those firms were shamed into returning the money. Fast casual restaurant operator Shake Shack announced it would return the $10 million loan, while high-end Ruth’s Chris steakhouse will refund $20 million. Both are among 150 public companies that received nearly $600 million in forgivable loans this month from the PPP, all of which was legal (there was a loophole allowing big companies with fewer than 500 employees in any one location to gain access to PPP), but not the intent of the program. Yes, restaurant owners have reported plunging sales of nearly 80 percent from a year ago and have been forced to lay off more than 8 million workers, but PPP may not be the best mechanism for the larger chains.

As a result of the blowback, on April 23, the Treasury Department updated its guidance on which companies can apply for PPP and how answers to the required certification on the application makes it “unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.”

The new bill tries to further address complaints that the nation’s real small businesses were shut out by allocating another $322 into PPP ($310 actual money and $12B in fees), with $60B earmarked for lenders with less than $50B in assets (of which $30B for those with less than $10B) in order to help those smaller firms that do not have pre-existing lending relationships.

The bill also adds $60B to the SBA Economic Injury Disaster Loan program (EIDL), which is usually tapped amid a natural disaster and provides loans up to $2 million for any business purpose. With EIDL, small business owners in need can apply for a loan but also receive as much as $10,000 up front. They don’t have to pay it back, and it’s supposed to be disbursed quickly. The bill also allocates $75B to hospitals and $25B to testing.

Meanwhile, there is a separate problem that small business owners are facing: some of their employees who are furloughed or laid off are better off collecting the enhanced unemployment benefits than going back on the company payroll. While it’s rational for a worker to grab as much money as possible in the short run, the question is: what happens four months from now when benefits could be exhausted and there’s no job to go back to?

After the Great Recession ended, there were 6.5 unemployed job seekers for every job opening. That number steadily declined until February of this year, when there were 0.8 people per job opening, the lowest number ever, which indicated a robust job market. Economists believe that the numbers could jump even higher than the previous levels, as jobs vanish and more and more people vie for fewer positions. This will mean that workers will have less bargaining power and wages could drop, which would once again exacerbate inequality.

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