On June 5 the Labor Department released the jobs report showing an unexpected rise in employment totaling 2.5 million jobs, but employment gains can be deceiving, being hired for one hour for pay qualifies one as employed. The June 5 release is a preliminary estimate based on less than complete survey data. More accurate information will be released over the next two months. On June 11 the Labor Department announced that another 1.5 million workers filed for unemployment during the previous week, proof that in the face of employment gains, other areas are still losing employment.
Along with the employment data the Labor Department reported a drop in the official (U-3) unemployment rate from 14.7 percent in April, to 13.3 percent in May. The more comprehensive (U-6) unemployment rate that includes discouraged, marginally attached, and involuntary part-time workers also fell from 22.4 percent to 20.7 percent a rate that is still at Depression era levels. Not mentioned in the news release was that average hourly earning in May fell by 1 percent which means that the new jobs created in May paid, on average, less than national average.
There’s confusion at the state level, due to a lack of federal guidance, so it’s unclear where we’re headed in terms of moving from Phase 1 to Phase 2. Case in point. The COVID-19 virus is expanding in many western and southern states while declining in the east. On Tuesday, June 9, Governor Hutchinson announced that Arkansas was not ready to move to Phase 2. On Wednesday, June 10, Governor Hutchinson changed his mind and announced that Arkansas would move to Phase 2 on June 15.
So the big question now is, “How should we proceed?” We’ve never had an intentional shutdown of the economy, and since we can’t restart the entire economy all at once we’re confronted with when, and how, to do a phased restart without causing economic distress or minor setbacks. At this time, the Senate is refusing to take any further action increasing the probability that the recession we just entered will continue at least through the end of the year.
Republican resistance to any further stimulus legislation means that the expanded unemployment compensation benefits of $600 per week will end on July 31. And, if the expanded unemployment benefits are not extended, then unemployment compensation will return to its original benefit levels. Unemployment compensation benefits range from a high of $1,234 in Massachusetts to a low of $190 in Puerto Rico, with the median state level being Arkansas’ at $451. If the expanded unemployment compensation ends, incomes will drop by $2,400 per month, for an unemployed family in Arkansas that’s a decrease in monthly income of 57 percent, pushing those families back into the bottom 20 percent of income earners. With no further extensions, all unemployment compensation ends after 26 weeks which will result in a precipitous drop in demand and ultimately employment.
If we’re going to avoid a prolonged period of economic stagnation, we’re going to have to think creatively. Maryland is developing a plan that will keep previously furloughed restaurant workers classified as unemployed if their current earnings do not equal their unemployment pay with the state making up the pay differential between their current pay and what they would have earned on unemployment. This policy will allow these workers to remain eligible for the $600 per week federal assistance.
Senator Ron Wyden (D-OR) has a proposal to extend unemployment benefits. Wyden’s plan would: Extend $600 a week unemployment benefits beyond July 31, 2020. After July 31, 2020, the benefits would remain at $600 a week for all weeks until a state’s three-month average total unemployment rate falls below 11 percent. Unemployment compensation would be $500 a week for states with a three-month average unemployment rate in the 10 percent range, $400 a week in the 9 percent range, $300 a week in the 8 percent range, $200 a week in the 7 percent range, and $100 a week in the 6 percent range.
Unlike other recessions the pandemic will determine the pace at which we reopen. We can’t allow economic policy to be driven by one month’s worth of preliminary economic data. This means that our economic policies for recovery can’t be a “one and done,” they must be constantly evolving to meet our needs. Some of the economic problems that need immediate attention include, the budget crisis facing the Post Office, the looming state government budget deficits, and the absence of mortgage/rent relief programs. If the Senate continues to insist that households and businesses need no further assistance, then we’re beyond flirting with disaster, we’re guaranteeing it.