MNI EXCLUSIVE:US Permanent Joblessness to Eclipse Hiring Burst

U.S. layoffs will more likely be permanent in the months ahead with the surge of re-hiring after the first wave of Covid-19 now fading away, current and former officials told MNI.

Still-high unemployment and consumers holding back on spending are weighing on economic growth, weakening the prospect of more re-hiring, said Heidi Shierholz, former chief economist to the Secretary of Labor under President Barack Obama.

"Layoffs that happen now are much more likely to be permanent," she said in an interview. "People will lose their jobs permanently or you'll see a shift where people who had lost their jobs temporarily become permanent."

Widespread re-hiring following state shutdowns has recovered almost half of the 22 million jobs lost in March and April, but that dynamic has played itself out, Shierholz said.

PAYROLLS DECLINE?

The U.S. could see falling payrolls, perhaps entering a second recession, if the "diminished" spending trend increases while re-hiring abates, she said, though that could be partially offset by more aid from Congress.

"Growth is slowing as a result of the 'demand effect' now, and that dynamic is much, much larger," she said. "We're talking millions of people unemployed as a result of it without more Congressional aid."

Nearly 800,000 Americans filed for unemployment insurance benefits through Oct. 17, the lowest since pandemic-related layoffs began in March. While that figure also accounts for unemployed workers who may have waited to file an initial claim or whose work-weeks were substantially reduced, it represents hundreds of thousands of new and very likely permanent layoffs in a single week.

"If we have weak economic growth or we have economic contraction, I don't think that's going to lead to temporary layoffs," said Josh Wright, chief economist at Wrightside Advisors in New York. "That will go right into permanent layoffs."

CROSSING OVER

Permanent job loss grew to 3.8 million in September and is likely to soon overtake temporary unemployment of 4.6 million, Wright said, as once-temporary furloughs turn permanent.

"These lines are converging, and probably going to the cross in the next few months, which is a highly unusual pattern," he said. "We've had the increase of permanent job loss much more quickly, much more steeply than we saw in even the Great Recession."

Permanent layoffs in the Covid-19-led recession aren't likely to reach the peak 6.8 million seen during the last recession, he said. That's because more federal relief is likely coming that should stave off any surge in the jobless rate.

Any increase in permanent unemployment is enough to hamper a recovery, said Daniel Cooper, a senior economist and policy advisor at the Boston Fed, as employee-employer relationships are essentially severed and the likelihood of quickly finding new work plummets.

SCARRING POTENTIAL

"The probability of finding a job is lower" compared to a temporary layoff, he said. "That slows things down and the recovery takes longer."

That will have a significant impact on long-term unemployment, which rose to 2.4 million in September, he said, leading to scarring in the labor market as job skills and earning potential are eroded.

Roughly 7.5 million workers are neither employed nor still connected to their employer or have given up on looking for a job, former BLS head Erica Groshen told MNI this week.