MNI INTERVIEW:Millions More US Jobs Lost if Govt Aid Falters

Millions more U.S. jobs will be lost in coming months if a federal relief package fails to support struggling households and businesses, labor market experts told MNI.

The Republican-led proposal to reduce enhanced unemployment benefits starting next month could result in more than 3 million job cuts, while insufficient federal support for state and local governments could add another 5 million to that tally, said Heidi Shierholz, former Chief Economist to the U.S. Secretary of Labor under the Obama administration.

The U.S. government's loosening grip on the coronavirus outbreak likely means the labor market is "stalling out," she said in an interview. Jobs relying on social contact won't likely return until an effective treatment or vaccine is developed.

"It feels like we're settling in for a period of breathtakingly high extended unemployment," she said.

NEW UNEMPLOYMENT PEAK?

The U.S. has struggled to control the outbreak of Covid-19 and total confirmed cases reached 4 million last week, according to Johns Hopkins University.

Shierholz, now a senior economist at the Economic Policy Institute in Washington, said recent real-time consumer spending and hiring data indicate "big job losses" and the record-shattering 14.7% unemployment rate seen in April could be overtaken later this year.

New initial unemployment claims increased by more than 100,000 to 1.42 million through July 18, the first weekly increase since applications peaked in the final week of March.

Shierholz said the USD1 trillion in federal aid set to be officially announced by Senate leaders late Monday is "appallingly low" and an expected end to a $600 additive to regular state unemployment benefits would be a major blow to the labor market.

"That $600 is supporting 5.1 million jobs," she said, referencing EPI calculations. "If you kill the $600, you kill those jobs." Senate Republicans are expected to cut additional weekly benefits to $200, which would still mean 3.4 million jobs lost, she said.

BUDGET CUTS

Insufficient aid to state and local governments, already facing a budget shortfall of roughly USD1 trillion, will "delay the recovery by years," Shierholz said, and the U.S. is set to lose more than 5 million jobs due to state and local austerity alone by the end of next year. Senate leaders aren't likely to introduce additional funding for state and local governments in the coming relief bill, according to media reports.

That could also mean higher taxes along with slashed budgets, Alexander Bartik, a professor of economics at the University of Illinois at Urbana-Champaign, told MNI. That could further jeopardize a swift labor market recovery.

"The people being laid off and furloughed will themselves be spending less," he said. "If there are higher taxes, that's going to reduce economic activity and spending. The combination of these two things is going to put pressure on already-pressured businesses."

Roughly 60% of small businesses surveyed by Bartik and colleagues in April believed the coronavirus crisis in the U.S. would be corralled by early July, he said, and the majority of businesses were prepared to withstand a shock lasting just a few weeks without additional aid from the government.

SECOND SHUTDOWN RISK

"When we surveyed firms about how long they could survive if the crisis continued, in the majority of industries, firms said they could survive a month," he said. "Given those self-reported probabilities, it's a time to be concerned."

Many small businesses are "walking wounded" after closing temporarily in March and April and are far more likely to close permanently if another lockdown is introduced and government aid isn't rolled out efficiently, said Sean Snaith, Director of the University of Central Florida's Institute for Economic Forecasting.

"Large companies like Disney and Delta Airlines were always going to emerge on the other side of this pandemic," he said. "But if you think of all these little businesses that may be in beach areas or rely on tourism traffic, they don't have the resources to ride out another shutdown."