A week ago Miguel Faria-e-Castro, an economist at the Federal Reserve Bank of St. Louis, did a “Back-of-the-Envelope” estimate of what June’s unemployment rate and number of layoffs could be due to the coronavirus. As reported by Sarah Hansen at Forbes, the blog posting showed that there could be 47 million people let go which would lead to an unemployment rate of 32.1%, higher than the Great Depression’s worst rate of 24.9%.
Faria-e-Castro used analysis from two other blog postings by economists at the St. Louis Fed which were, “Which Workers Face the Highest Unemployment Risk” and “Social Distancing and Contact-Intensive Occupations” in calculating how many people could be laid off. Faria-e-Castro’s calculations were:
- Civilian labor force in February 2020 = 164.5 million
- Unemployment rate in February 2020 = 3.5%
- Unemployed persons in February 2020 = 5.76 million
- Workers in occupations with a high risk of layoffs = 66.8 million
- Workers in high contact-intensive occupations = 27.3 million
- Estimated layoffs (average of the two) = 47.05 million
- Unemployed persons in June quarter = 52.8 million
- Unemployed rate in June quarter = 32.1%
Impact of 47 million layoffs
Forty-seven million people or over 28% of the total workforce being laid off in just three months would be devastating to the economy. This result is probably worse, too much worse, than what will transpire, as a number of assumptions below should help mitigate this outcome.
However, if this scenario is close to being correct the graph below shows what 47 million fewer people being employed looks like by June. After getting to the bottom, it includes by month what it would take to get back to February’s level of employment by the end of the year.
- March: No change
- April: 15 million laid off
- May: 20 million laid off
- June: 12 million laid off
- July: 4 million hired
- August: 7 million hired
- September: 7 million hired
- October: 9 million hired
- November: 11 million hired
- December: 9 million hired
Some of the key assumptions Faria-e-Castro used were:
- Workers in education and especially health care are less likely to be laid off so quickly (10 million)
- Many businesses may send workers home with pay instead of laying them off
- This is before the positive impact from the $2 trillion recovery package passed by Congress and signed by President Trump
There are a number of economists that are forecasting between 14 and 20 million people being laid off due to the coronavirus, which unfortunately seems to be a more likely scenario.
The St. Louis Fed President essentially previewed the analysis
Before Faria-e-Castro’s blog posting, James Bullard, the St. Louis Federal Reserve President, did an interview with Bloomberg two days earlier. In it he said, “the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product.”
He added, “This is a planned, organized partial shutdown of the U.S. economy in the second quarter. The overall goal is to keep everyone, households and businesses, whole” with government support. “It is a huge shock and we are trying to cope with it and keep it under control.”
This article originally appeared on Forbes.
