Lockdowns May Have Permanently Scarred the Labor Market
Every week, analysts and pundits pour over the latest weekly jobs report looking for signs of life. Every month, we dive into the monthly unemployment numbers hoping they signal economic recovery. But these unemployment numbers don’t tell the whole story.
The government economic shutdowns in response to the coronavirus pandemic have deeply wounded the economy in ways that won’t immediately show up in the numbers. In fact, they could leave scars on the economy that don’t fade for years.
Many people still believe the US economy will quickly recover once scientists develop an effective coronavirus vaccine or the pandemic simply runs its course. But there are plenty of data points that undercut that narrative. Businesses are shutting down and bankruptcies are at a 10-year high. Americans owe billions in back rent. There is a rising number of over-leveraged zombie companies. And a tsunami of defaults and bankruptcies are on the horizon.
The quickest cure for our economic woes is getting people back to work. According to the mainstream narrative, governments will lift restrictions, people will head back to work and the economy will bounce back.
A recent Reuters report casts doubt on this assumption. While some people will certainly return to work as governments ease up on restrictions, the lockdowns may have significantly altered the labor market. As the report put it, “Six months into the pandemic, evidence of longer-term damage to the US labor market is emerging.”
In a nutshell, a lot of people will likely never return to work.
According to analysis by Reuters and labor economists, retirements are drifting upward, women are not re-engaging the job market quickly and many temporary furloughs are becoming permanent layoffs.
Economic growth depends on how many people work. If more retire, or are kept from the job market because of childcare or health and safety issues, growth is slower.”
People 65 and older account for 17% of workers who have left the labor force since August. Women make up 54% of the departed and 47% of the total workforce. Analysts say these people may never return to their jobs. Retirements are rising and many women are opting to stay home. The number of parents homeschooling is skyrocketing, meaning more people opting out of the workforce.
Meanwhile, a lot of temporary furloughs are becoming permanent job cuts.
The road back to employment may be getting harder, as suggested in the analysis of CPS data by Rand’s Edwards. Of 7.6 million people ‘temporarily’ laid off as of June, the number who had found jobs by July – 2.4 million – was eclipsed by the 2.8 million who either left the labor force altogether or said they were no longer expecting to get their jobs back. That’s the first time in the pandemic that was the case.”
As the pandemic unfolded, many companies temporarily furloughed workers. Now, as the economic realities begin to sink in, companies are letting a lot of those workers go for good. Several executives interviewed by CNBC said they were moving forward with permanent layoffs. The head of a large transportation company said about half of its furloughs were now permanent headcount reductions. Spirit AeroSystems’ CEO told CNBC the company is now making the layoffs of thousands permanent after the Boeing/Airbus cuts.
It will take many areas of the economy years to recover. Travel and entertainment have been decimated. And as the massive levels of debt begin to catch up with overleveraged companies, you’ll likely see more businesses close their doors forever.
In a nutshell, it could take years for the economy to recover. And that doesn’t even take into account the fact that the economy was already damaged in the first place.