The outbreak of the coronavirus pandemic and measures to contain it caused economic output to collapse – probably by more than 10 percent in the spring – causing the unemployment rate to skyrocket. Almost forty million employees have at least temporarily lost their jobs since the middle of March. The unemployment rate has risen to 14,7 percent in April, which is the highest rate since this time series was started in 1948. But it has rather surprisingly decreased in May to 13,3 percent (many had expected a further increase). However, the “true” number of unemployed persons is probably higher due to misclassifications and other measurement challenges (I have the impression that the “true” number might have been at 18-20 percent in April and in May at 15-17 percent.). However, the slight decrease in the unemployment rate is a sign of hope that the worst is over. But it is also quite certain that the recovery will probably be slow and will be painful for the persons involved.
The American labor market was still in good shape in February before the pandemic. In addition to a low unemployment rate of three and a half percent, wages have finally increased somewhat more than in the past – especially for the low-skilled. Previously, economic performance had developed solidly since the 2008 financial crisis, but overall there had not been a strong boom with wages rising significantly across the board.
With the increasing relaxation of measures to contain the pandemic, quite a lot of people are now returning to their jobs. However, many of the job losses that occurred in March, April, and May will persist for a long time. Companies in different sectors are struggling to survive and might reduce the number of workers. And other companies could now invest even more in automation.
I do not expect a rapid reduction in the unemployment rate; unemployment will remain high until 2022. However, forecasts are extremely difficult at the moment and I hope to be too pessimistic. In my baseline scenario, I expect the unemployment rate to slowly approach 10 percent in the autumn of the current year. A further decline may then be expected in 2021 in the wake of the economic recovery. But only in the summer of 2022 will the unemployment rate again be in a range of four to five percent, which could be described as “normal”. Against this background, wage developments are likely to remain subdued for the coming years. Needless to say again, however, that any economic assessments and forecasts are associated with a high degree of uncertainty. There is, for instance, the risk of a second wave of the pandemic. In addition, global tensions between countries could increase.
Here is the latest report for May of the Bureau of Labor Statistics:
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