The outbreak of the coronavirus pandemic and measures to contain it caused economic output to collapse – probably by 30 to 40 percent (annualized) in the second quarter of this year – causing the unemployment rate to skyrocket. Millions of employees have at least temporarily lost their jobs since the middle of March. The unemployment rate rose to 14.7 percent in April, which is the highest rate since this time series was started in 1948. But it has rather surprisingly already started to decrease in May to 13.3 percent. A further decrease was observed for June (11.1 percent). The June survey of employers revealed that 4.8 million jobs were added (mostly workers who were temporarily absent from their jobs went back to work). In particular, the recovery occurred in sectors such as hospitality, leisure, or health services, which were hardly hit by the pandemic and the lockdown.
However, one should bear in mind that 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 June at 12-13.5 percent.). However, the gradual 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 last for a long time and will be painful for the persons involved. Currently, the number of Covid-19 cases is rising again in a number of U.S. states, which might slow down further improvements. 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 elevated 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 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. On average, I expect an unemployment rate of around 7.5 percent in 2021. 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, in particular, the risk of a second wave of the pandemic (as mentioned above, the number of cases in some states has increasing fast recently). In addition, global tensions between countries could increase.
Some useful links and references
The Employment Situation Summary of the Bureau of Labor Statistics: https://www.bls.gov/news.release/empsit.nr0.htm
Stephanie Aaronson from Brookings: https://www.brookings.edu/blog/up-front/2020/07/02/what-does-the-june-jobs-report-tell-us-about-the-state-of-the-u-s-economy/
Jason Furman from the Peterson Institute for International Economics and Wilson Powell III from Harvard University: https://www.piie.com/blogs/realtime-economic-issues-watch/us-unemployment-rate-falls-again-little-progress-after
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