Virus Infects July Jobs

Viruses have a nasty way of lingering and Covid-19 is no different. Despite two strong months of job gains in May and June, the uptick in cases in the South and West prompted municipalities to tighten rules; caused consumers and businesses to slow down their efforts to return to pre-pandemic behavior; and slowed down job growth in July.

The economy added 1.8 million jobs in July, down from June’s 4.8 million and lower than May’s 2.7 million. The unemployment rate slid from 11.1 percent to 10.2 percent (the peak was 14.7 percent in April) and the broader rate (U-6) edged down to 16.5 percent from 18 percent in June, and a peak of 22.8 percent in April.

Before the release, estimates were all over the place, because it was unclear whether the survey period for the monthly report would reveal the extent of the slowing momentum in the labor market. 

The change in weekly unemployment claims may have better captured the rapid changes. Here’s a good reality check: on March 14th, before most of the nation closed down, weekly claims were just 282,000. Two weeks later, claims peaked at over 6.8 million, but then started a slow and steady decline to 1.3 million in the week ended July 11th. As the virus surged, so too did claims, above 1.4 million for two weeks. And then, in the week ending August 1, they resumed their decline.

Direction is important, but so too are the stark numbers: New claims for unemployment have remained above 1,000,000 for 20 consecutive weeks, dwarfing the previous record high of 695,000 in 1982. And while the number of people receiving unemployment benefits has dropped to 16.1 million, the lowest level since April, the TOTAL number of workers receiving benefits, which includes programs for self-employed and gig workers, stands at a staggering 32.2 million, up from 1.7 million a year ago.

In “normal” times, an increase of 1.8 million jobs would be cause for celebration, and indeed, job gains are better than job losses! But in this extraordinary period, 1.8 million more jobs still leaves the economy with 12.9 million fewer than existed in February.

And there is concern that some of the small businesses, which used the Paycheck Protection Program to rehire staff, may do an about-face and be forced to re-layoff their workers. A survey by Cornell University found that nearly a third (31%) of returning workers have lost their jobs for a second time, and another quarter (26%) say their bosses have put them on notice that they could be laid off again.

Meanwhile, as Congress continues to negotiate more stimulus, fresh research calls into question the idea that enhanced unemployment benefits, even those that result in making more money than prior to job loss, acts as a disincentive from seeking a new job. Papers from Yale University and the Chicago Federal Reserve find no correlation between receiving larger benefits and looking for a job. In fact, those receiving unemployment benefits search intensely for new work, and their effort appears to be somewhat greater than that of the unemployed not receiving benefits. What’s the biggest barrier to getting a new job? It’s not extra unemployment checks, but the obvious fact that the virus has vaporized millions of positions.

A separate working paper from the National Bureau of Economic Research (NBER) found that extended unemployment benefits “allows workers to search longer and eventually find jobs better suited to their skills.” The ability to be patient has downstream effects, because a worker can “turn down other jobs that may also be better suited for others.” The authors found that the cushion of money and time increases labor market efficiency and productivity overall.