COVID-19: Impact on US labour market
Millions of people in the USA are looking for work: the unemployment rate is likely to rise rapidly for the time being. This is because a V-shaped recovery of the economy is not to be expected. Experts predict the expiration of aid programs to lead to significantly more company bankruptcies and thus more unemployed.
According to US Federal Reserve Bank member Neel Kashkari, the situation of the COVID-19 crisis on US labour market looks even more devastating than officially known. In fact, the unemployment rate is currently at 24 or 25 percent and not at the officially stated 14.7 percent, the president of the Fed's Minneapolis branch said. It is still unclear when the worst will be over in the US labour market. That would depend on whether the temporary release of employees would result in permanent layoffs.
At the beginning of the month, the US government had declared that 20.5 million jobs outside of the agriculture sector had been cut in the wake of the virus crisis in April. The unemployment rate rose from 4.4 to 14.7 percent - the highest level since World War II. However, the ministry had also stated that the actual number of unemployed was probably 7.5 million higher.
Kashkari and other experts assume that many US
citizens do not register with the authorities as job seekers because of the lockdown
orders - and therefore do not appear in the statistics. Since mid-March, a
total of around 36.5 million US citizens have applied for unemployment benefits.
Temporarily up to 40 million unemployed in the USA?
“What we know is that this report almost certainly
understates the tragedy has befallen the American labour force,” said Joseph
Brusuelas, chief economist of the US auditing firm RSM. Even if many jobs are
to be filled again, in some cases with the easing of restrictions, the
unemployment rate is likely to continue to rise, Brusuelas believes.
"Based on our estimation of U.S. labour market dynamics, we expect the
total number of unemployed to crest somewhere above 40 million". A good
quarter of this cohort is likely to be affected by permanent unemployment, the
Fed bankers see no chance for rapid economic recovery
It is now clear that there will be no quick economic recovery, Kashkari said. The "V" scenario, in which, as with the letter, things go sharply downwards, but also quickly sharply upwards again, is "off the table". Fed Chairman Jerome Powell had made a similar statement on Wednesday, saying that the US economy was threatened with a prolonged period of low growth and stagnating incomes.
When the government's two-month aid program
"Paycheck Protection Program" expires, there will be an increase in
corporate bankruptcies, Kashkari predicted. If this happens on a large scale in
industry, production capacities will also be reduced, and this must be
prevented. Aid would also be needed to help citizens to pay their rent and
food. "Money in the pockets of people who have lost their jobs is what we
need right now."
Significantly more corporate failures expected
The central banker said that he himself would not be reassured by the developments on the stock market. He listens more to health experts than to investors. The US index Nasdaq had fallen from almost 9800 points in mid-February to around 6900 in mid-March due to concerns about the consequences of the virus, but then - despite some surprisingly bad economic data - it made up for much of the loss and was trading at over 9400 points at the beginning of today.