MNI POLICY: US State Re-Openings May Backfire on Unemployment

By Brooke Migdon

     WASHINGTON (MNI) - Early re-openings of U.S. state economies could backfire

and keep unemployment elevated for a much longer period if there are rebounds in

coronavirus infections, experts told MNI.

     Businesses could be forced to close a second time, prompting another round

of layoffs leading to prolonged unemployment, according to Villanova University

economics professor Cheryl Carleton. Smaller retailers like hairdressers have

less cash or credit lines available to withstand the costs of a second restart,

meaning temporary layoffs would turn into permanent job losses.

     "If it starts to spike again and they have to close again, then that's

going to make them even more wary of opening yet again," Carleton said. Smaller

retailers may even "throw in the towel" and close permanently, she said.

     Government and Fed officials say unemployment will surge to between 15% and

20% and are offering trillions of dollars in stimulus to make sure businesses

keep their workers through the economic restart. President Donald Trump has

given mixed messages on states re-opening even as his own officials warn danger

from the pandemic remains. 

     Consumer spending may sag in the long run if states open "too far too soon"

and a second wave of infections arrives, said Jared Bernstein, an economic

advisor to former Vice President Joe Biden. That could have dire consequences

with household spending making up 70% of the U.S. economy.

     "There's no way this can be anything other than a deep recession, even a

depression," said Bernstein, a senior fellow at the Center on Budget and Policy

Priorities in Washington. "If states take actions that lead to consumers staying

home longer than is warranted, that's going to seriously hurt their employers

and employees."

     --OPENING SOON

     South Carolina businesses have partially re-opened after two weeks of

shutdowns and Georgia's restaurants are open again. Tennessee and Florida are

also considering re-opening most businesses before the end of this week. Others

are looking at their options as the original stay-at-home orders issued over the

last month are up for renewal or termination soon. 

     The scenario where workers turn to unemployment benefits a second time

would prove difficult for states still working through backlogs from the first

wave of jobless claims, said Stephen Wandner, senior fellow at the National

Academy of Social Insurance.

     Wandner, formerly with the Department of Labor's Office of Unemployment

Insurance, said adding to the 26 million claims over the past five weeks could

overwhelm an overworked and antiquated system if they come too soon. That would

create longer backlogs that would take more time to work through.

     "Systems when they were built never envisioned that many initial claims in

that period of time," he said. Almost 40 million people filed for unemployment

benefits during the global financial crisis that caused the 2008 recession --

and that took more than a year, according to the St. Louis Fed.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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