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As an economist and director of the California Policy Lab, Till von Wachter is continually spearheading research projects and policy recommendations related to labor and employment as well as homelessness, education and crime.
As the U.S. economy further slows because of how the COVID-19 pandemic has forced so many businesses to close, UCLA Newsroom asked von Wachter, who is also the associate dean of research for the division of social sciences in the UCLA College, to help parse through current https://guaranteedinstallmentloans.com/payday-loans-il/ employment statistics, why the $2.2 trillion federal stimulus package called the CARES Act – which was signed into law March 27 – is so critical and what its immediate and far-reaching effects might be for U.S. workers and the economy.
The number of new claims to unemployment insurance – 6.6 million – was deeply alarming because that number is so much higher than what we’ve seen in previous recessions. Moreover, these numbers do not capture the many people out of work that are self-employed, have low wages, or for some other reason do not qualify for unemployment insurance. As CNBC noted, even in the worst week of the Great Recession, the number of claims were only 665,000 in . The highest since the 1960s was 1,073,500 in the 1982 recession. Having studied unemployment, recessions and the policy responses to them for most of my academic career, I’m deeply concerned that if policymakers don’t act quickly, we could see a recession the likes of which our country has never experienced before. It will impact Americans for decades to come. There is still hope that the economy will turn back to normal after the Covid-19 pandemic is contained, but prolonged large-scale unemployment may be hard to reverse.
I have studied a range of situations where workers were hit by a sudden shock in the labor market, such as a job loss when a business suddenly lays off a large number of workers. The key here is to compare people who lost their jobs to a counterfactual of luckier workers who kept their jobs and that otherwise would have looked like them. The result from my research is that a worker with a steady job at a good employer that loses their job during a mass layoff in a recession will die 1.5 years sooner than they would have if they had not been laid off. When you extrapolate that to an expected unemployment rate of 10% (approximately 10 million additional unemployed workers, which given last week’s numbers may be a conservative scenario), my back-of-the-envelope calculations suggest a loss of 15 million life years. Beyond increased mortality, in separate research I have found these workers also suffer immediate and permanent earnings losses. Again, if those accrued to 10 million workers, it would amount to over $1 trillion dollars in earnings capacity lost over their lifetimes.
With record unemployment filings, federal stimulus will help, but more is needed
It’s also important to keep in mind more than 6 million individuals will graduate high school or obtain a college degree this year, and about 13 million workers age 16-24 are currently in the labor force. Hence about 20 million young individuals are of particularly high risk of exposure to a recession. Existing evidence suggests that unlucky labor market entrants suffer losses in earnings that last 10 to 15 years, depending on the severity of the recession. Yet, it appears their socioeconomic status declines again in middle age, and several studies have found that they experience higher rates of death over the long term. For example, entering the labor market during a large recession appears to reduce life-expectancy of young workers by about half a year. There would be an additional 10 million of life years lost from a prolonged recession.