It’s the Pandemic, Stupid

The shutdowns aren’t what’s driving the worst unemployment crisis since the Great Depression.

The April jobs report published by the Bureau of Labor Statistics this morning was record-breaking in every conceivable and terrible way.

The unemployment rate rose to 14.7 percent, the highest rate in the history of the statistic, going back to 1948. Unemployment reached a record high for almost every measured demographic—men, women, teenagers, whites, Asians, Hispanics.

The worst unemployment crisis since the Great Depression is also the most sudden in history. Before this morning, the BLS had never recorded a monthly decline in employment larger than the 1.9 million jobs lost in the spring of 1945. But between March and April 2020, the number of people with jobs collapsed by 20.5 million. The retail sector alone exceeded the 1945 record by shedding more than 2 million jobs.

Joblessness reached record highs across several industries, but none fared worse than leisure and hospitality, for which unemployment reached an eye-watering 39 percent. The 839,000 jobs lost in the accommodations industry alone exceeded the losses of the worst single month of the Great Recession. Employment at restaurants and in arts and entertainment fell to levels not seen since the 1980s, wiping out three decades of job growth in a matter of weeks.

Another measure of the labor market preferred by some economists is the employment-population ratio, which divides the number of Americans by the number of employed people. There, the U.S. also suffered its largest monthly decline on record, falling to 51.3 percent, the lowest number in the history of the statistic. It’s conceivable that next month’s report will, for the first time in history, show that the majority of Americans are not officially employed.

“There is no good news in this jobs report, but it’s important to remember that these are not normal times, and these are not normal job losses,” Adam Ozimek, the chief economist at Upwork, told me. “The task for policy makers is to ensure that when the economy opens back up, these 20.5 million jobs and the companies that employed them have not disappeared. If even a fraction of them do not, a major recession will be all but unavoidable.”

This crisis represents a unique and existential threat to America’s small businesses. Almost half of all job losses in April occurred in leisure and hospitality, where small businesses are overrepresented in places such as restaurants and stores. The decimation of small business would have several long-lasting implications. It would destroy jobs that would be unlikely to return quickly, delaying a recovery and creating a crisis of economically and psychologically ruinous long-term unemployment. It would trigger an extinction-level event for entrepreneurs, who might be less likely to take a risk in the future. And restaurants, cafés, theaters, community centers, and specialty shops that embody the civic memory of a neighborhood would be wiped off the face of the street. This would be a first-order economic tragedy, but it would also be a social calamity.

How do we stop one horrible month from becoming a 10-year depression? The most obvious solution to bring the global pandemic to a halt would be a medical deus ex machina, like effective antiviral treatments or accelerated vaccine development and manufacturing. But pharmaceutical science works on a multiyear time horizon, and the survival of millions of American businesses and tens of millions of jobs is endangered right now.

The White House and most Republicans seem to think that this crisis will be solved by loudly announcing the reopening of the economy. But this is a dangerous misunderstanding of what’s actually driving the recession: It’s the pandemic, stupid. The shutdowns themselves had “little or no impact on economic activity” according to an analysis by a team of economists at Harvard. Several papers now show that the decline in spending and employment in most cases occurred before states officially shut down their economy. Governments didn’t close state economies on their own, and they can’t open the economies on their own, either.

The primary step the government has taken to address the jobs crisis has been the Payroll Protection Program, which was designed to help companies hold their breath with the economy paused by administering forgivable loans that would cover payroll, utilities, and rent. But PPP has infamously failed, for now, to get money to the neediest small businesses in leisure and hospitality.

Ozimek has a better idea: Extend to small businesses the government’s ability to take out zero-interest long-term loans. “This will help them refinance existing debt and make capital purchases, including occupied real estate, that will help lower their costs,” he said. With these loans, business owners who believe they can survive the pandemic summer could refinance their debt, go from renting to owning, and invest in capital that would make their business more resilient. “If we don’t help with small-business viability, especially in the hardest-hit industries, we’re going to see a wave of failures that makes a quick recovery impossible,” Ozimek said.

Speaking to Americans as their economy was plunging into a depression in 1932, President Franklin D. Roosevelt said that the only thing Americans had to fear was “fear itself.” It was a lovely line, and it might have even been true once. But in the current crisis, there is so much more to fear than fear.

The virus is real, the hospitalizations are real, the deaths are real, the need for masks and social distancing is real, the threat to millions of restaurants and shops is real, and the incomparable levels of unemployment are real, too. The White House plan to reverse this cavalcade of horrors is to “reopen” the economy. But 20 million Americans just lost their jobs in the past few weeks, not because the government shut down the economy, but because a pandemic scared millions of American into staying at home. There is plenty to be wisely afraid of, but Washington thinking that a pandemic economy is like a garage door that it can reopen by pressing a button might be the scariest thing of all.