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Unemployment: the economic costs of COVID-19

April 11, 2020

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Photo credit: Rob Milsom

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In early April, the number of people with confirmed COVID-19 cases exceeded one million. At least half of the planet is now under stay at home orders, and all public life is grinding to a halt. Unable to continue normal operations, companies have undertaken massive layoffs in industries ranging from hotels to airlines, from restaurants to clothing manufacturers.

The United States now has more than half a million people diagnosed with COVID-19, and this number continues to grow. At least 200,000, and maybe more, people are likely to die from the COVID-19 virus in the United States. Yet the impact from this epidemic extends beyond sickness and death, and will include economic, sociological, and personal disruption and harm to human lives.

The economic impact of the COVID-19 pandemic is sure to be immense. To help track this trend, we analyzed the data on unemployment claims.

How many people have lost their jobs because of the coronavirus?

On March 19, 2020, the U.S. Department of Labor released preliminary data indicating that the number of unemployment claims had increased sharply to 281,000 from 211,000 the week before.

In the next few weeks, the number of unemployment insurance claims exploded. In the week ending in March 23, the number of claims was a staggering 3.3 million. The following week, this count more than doubled to to 6.8 million by the end of March. On April 4, the number of new claims dropped slightly, yet remained an enormous 6.6 million claims.

Number of weekly unemployment claims

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Source: The U.S. Department of Labor Unemployment Insurance Weekly Claims Data. National numbers are seasonally-adjusted and state data are not. Weekly data are supplemented with the department's most recent news release. Data are current as of April 9, 2020.

Initial unemployment claims are a measure that is different from the unemployment rate. For one, not all people are eligible for unemployment benefits; those who are self-employed, independent contractors, or working in the gig industry (such as Uber drivers) typically do not qualify for unemployment. Notably, the 2020 CARES Act extends unemployment benefits to freelance workers, although there are early reports of confusion and variation in how this provision is being implemented.

Nonetheless, early estimates suggest that the actual unemployment rate in the United States is likely close to 13%. This rate is higher than at any time since 1940 (although lower than rates as high as 24% seen during the Great Depression).

Where will COVID-19 unemployment hit hardest?

Some American communities are more vulnerable to COVID-19 unemployment than others. States where most people are employed in the service industry, for example, may experience larger job losses. By contrast, where more people work white collar jobs the impact may be less, if work can be done virtually.

The longer-term impact of COVID-19 unemployment is similarly variable by state. States that did not expand Medicaid eligibility among low-income adults are likely to see more people becoming under- or uninsured. The number of weeks of unemployment compensation is also variable by states, ranging from 12 weeks in Florida and North Carolina to 28 weeks in Montana, and the maximum benefit amount ranges from $235 per week in Mississippi to $1,234 in Massachusetts. Under the CARES Act, people may receive up to 39 weeks of unemployment (through a combination of regular benefits and new benefits as part of the act).

Unemployment claims, April 2020 vs. April 2019

Source: The U.S. Department of Labor Unemployment Insurance Weekly Claims Data. National numbers are seasonally-adjusted and state data are not. Weekly data are supplemented with the department's most recent news release. Data are current as of April 9, 2020.

The explosion of unemployment insurance claims is impacting some states more than others. Numerically, the majority of unemployment claims are in California, Georgia, Michigan, New York, Texas, and Pennsylvania.

When weekly claims are compared to the same week one year earlier, we find that proportionally the greatest growth in unemployment has been in Georgia, Michigan, North Dakota, and Louisiana. In each of these states, the number of weekly unemployment claims has increased by more than 7,000% compared to the same week in 2019.

Change in unemployment claims, April 2020 vs. April 2019

Source: The U.S. Department of Labor Unemployment Insurance Weekly Claims Data. National numbers are seasonally-adjusted and state data are not. Weekly data are supplemented with the department's most recent news release. Data are current as of April 9, 2020.

Implications for the COVID-19 recovery

Initial unemployment claims do not necessarily equate with long-term unemployment. Some of those laid off may get their jobs back, once the country begins to re-open. In the best scenario, a combination of unemployment benefits, personal savings, and additional resources made available in the CARES Act will carry these individuals through until they can work again.

This scenario is dependent on several factors. First, state unemployment systems must have the capacity to deliver unemployment support to all those making claims. This will mean finding workarounds for government websites that are crashing from increased traffic.

It will depend on states (through their own tax revenue and the additional resources from the CARES Act) having enough funding to provide these benefits. Despite failing to come to an agreement this week, Congress will need to agree upon a plan to help small business keep staff on payroll. And it will require an evidence-based approach to opening up the economy as son as it is epidemiologically safe to do so.

In the longer term, American unemployment will also depend on how industries are changed by the COVID-19 outbreak. It is still unclear if industries will shift more of their industries into virtual spaces, and whether that facilitates greater outsourcing of jobs. If a larger proportion of food service continues to be through take-out and delivery, it remains to be seen whether restaurants will employ fewer staff. Finally, many small businesses may be unable to weather several months without revenue and close permanently; entrepreneurs may be reluctant to start new business to fill their places.

Mitigating these larger shifts in the U.S. economy will take a concerted effort by governments at all levels, philanthropic organizations, and communities. Only through an aggressive and immediate response can these immense personal losses be prevented from becoming a long term, national devastation.




Want to see for yourself? All our data are on GitHub.

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