The Washington PostDemocracy Dies in Darkness

Soaring joblessness could shake U.S. economy, politics for years

Eye on lessons from the Great Depression and 2008 crisis

May 8, 2020 at 6:01 p.m. EDT
President Trump meets with Republican lawmakers in the State Dining Room of the White House on Friday, May 8. (Anna Moneymaker/Pool/EPA-EFE/Shutterstock)

The United States is facing a political and economic challenge like nothing it has seen in nearly 100 years.

Mass unemployment on a scale not seen since the Great Depression has erased the economic gains of the past decade and now threatens to linger for years, fueling social discord and shaking an already polarized political system.

Almost overnight, it seems, the U.S. economy, which just two months ago boasted abundant jobs and soaring stock values, has become a shambles. Not since the government began collecting official data in 1948 has a smaller share of the U.S. population been employed.

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The unique character of this economic collapse, triggered by an ongoing public health crisis, may lead to an enduring decline in the demand for labor. While the pandemic rages, companies are developing new ways to operate with fewer people, replacing the lost workers with machines that are impervious to illness.

An early example is Carrier Global, a manufacturer of heating and air-conditioning systems, which has implemented social distancing rules on its assembly lines. Technicians who once worked shoulder-to-shoulder are now spread out along a conveyor belt. The resulting gaps may soon be filled with new machines.

“Where you have people spaced out three feet and you want to get them spaced out six feet, probably the spacing in between you’re going to see, I think, a trend towards robotics overall,” David Gitlin, Carrier’s chief executive, told CNBC on Friday.

Older workers, a steadily rising fraction of the labor force in recent years, face special challenges. The novel coronavirus is particularly deadly for them, leading President Trump to suggest earlier this week that teachers aged 60 and above “should not be teaching school for a while.”

President Trump's reelection campaign praised his coronavirus response in an ad release on May 3. But many of the quotes in the video were misleading. (Video: The Washington Post)

Young people graduating this spring into a gale of joblessness are likely to see their lifetime earnings depressed as a result of the poor labor market. That’s what happened to their predecessors who graduated into the double-dip recession of the early 1980s.

Graphic: More than a quarter of workers faced job losses or underemployment in April

Political stability, too, will be tested. In the 1930s, before publicly funded social insurance insulated most workers against the vagaries of the market, the Great Depression’s chronic joblessness helped give rise to fascism in Germany, Spain and Italy.

The Depression’s political consequences were less severe in the United States, according to David Kennedy, emeritus professor of history at Stanford University. American culture proved more resilient, confining extremists like the anti-Semitic Rev. Charles Coughlin and Sen. Huey Long of Louisiana to the societal fringes.

“Are these institutions, norms and political systems as resilient today? Boy, that’s anybody’s guess,” said Kennedy, author of “Freedom from Fear: The American People in Depression and War,” which was awarded the Pulitzer Prize in 2000. “The political environment today is more toxic, indeed septic, than in the 1930s.”

Believing that today’s highly polarized country will prove as impregnable, Kennedy said, might be “wishful thinking.”

The 2008 global financial crisis spawned fierce political movements on the left and the right. As unemployment rose to a peak of 10 percent in October 2009, Occupy Wall Street filled the streets of New York and Washington with protesters. Sen. Bernie Sanders (I-Vt.), who calls himself a Democratic socialist, capitalized on a surge of progressive sentiment to mount a strong presidential primary bid in 2016.

Populist sentiment on the right, meanwhile, fueled the Brexit campaign in the United Kingdom, which ultimately severed that country’s 47-year membership in the European Union, as well as the unlikely political rise of reality television star Donald Trump.

“I have no doubt that the resentments, fears and grievances that people are experiencing right now are going to shape our politics for the next generation very much as what happened after 2008,” said Ron Chernow, author of popular biographies of President Ulysses S. Grant and Alexander Hamilton.

The current circumstances are extraordinary. Barely 51 percent of the population is employed, the lowest mark since records began, the Labor Department reported on Friday.

More than 23 million workers are without a job. In February, just 5.8 million lacked work.

Over 10 million Americans filed for unemployment in March. Here are some of their stories. (Video: The Washington Post)

The good news is that 78 percent of the unemployed say they expect to be recalled to their old jobs once the pandemic ebbs. If that happens, the economy could recover quickly.

A greater share of temporary layoffs has historically meant a faster economic rebound, according to recent Goldman Sachs research.

“If we’re right about the temporary layoffs, then people will go back to work fairly rapidly,” Larry Kudlow, director of the National Economic Council, told reporters Friday. “Not all of them, mind you. But a good chunk.”

Still, there are reasons to worry. More than one-quarter of the jobs that vanished in the past two months were in the leisure and hospitality sector, which have been battered by the pandemic. Fears of catching the sometimes-fatal coronavirus are especially acute in businesses with plenty of customer contact, such as hotels, theme parks and restaurants.

The conditions imposed in some states that are reopening for business make it unlikely that large numbers of those jobs will quickly return. Some jurisdictions are limiting restaurants to 25 percent of their capacity, which imperils their ability to operate.

Naomi Pomeroy owns Beast, a fine-dining restaurant in Portland, Ore., and a cocktail bar called Expatriate, right across the street. The venues had been profitable for a dozen years before the pandemic, she said. But without greater government financial support, she does not anticipate an early recall of her 30 workers.

“It’s really not looking good,” she said. “We’re in a bad place here.”

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Pomeroy’s experience may be indicative of the pandemic’s lasting imprint upon the labor market. In a working paper released this week by the University of Chicago’s Becker Friedman Institute for Economics, a trio of economists concluded that “42 percent of recent layoffs will result in permanent job loss.”

That would mean nearly 12 million permanent vacancies, according to the study by a pair of economists from Stanford University and one from the University of Chicago.

Most economists expect a sharp rebound in employment starting in the third quarter. But high unemployment is likely to persist for years. The nonpartisan Congressional Budget Office expects the unemployment rate at the end of next year to be 9.5 percent.

Jason Furman, who was one of President Obama’s top economic advisers, said he does not expect the jobless rate to dip below 5 percent until 2028.

For some groups, the pandemic represents the latest in a long series of setbacks. Males between 25 and 54 years old — what economists call “prime age” workers — have lost ground in every recession since the 1960s. In 1960, more than 97 percent of men in that category were active members of the labor force, either working or looking for a job.

For 60 years, the figure has declined in each recession and failed to regain its previous peak when the economy began growing again. “In every economic recovery since the 1960s, they’ve never recovered their losses,” said Furman.

Indeed, the lesson of earlier downturns is: patience.

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In the wake of the Great Recession, it took more than six years for the number of working Americans to return to the January 2008 peak of 138.4 million. Long after the stock market had begun a steady march upward, unemployment remained unusually high.

Likewise, it took the labor force four years to regain its February 2001 peak after the recession that began one month later. And in the double-dip recession of the early 1980s, employment hit 90.9 million workers in March of 1980. Almost three and a half years later, following an up-and-down cycle, there were still fewer Americans working.

What Karl Marx once called “the reserve army of the unemployed” will probably keep wage growth in check as the recovery inches forward.

“There are massive economic consequences to layoffs,” said Heidi Shierholz, senior economist at the Economic Policy Institute. “You can have a really long-lasting negative impact on earnings.”

College students who will graduate in the spring almost certainly will encounter the worst job market in at least a decade. Based on the experience of those who started work during earlier recessions, they are likely to face lower starting salaries than people who graduate during booms, according to research by economist Till von Wachter of the University of California at Los Angeles.

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Those shortfalls last for up to a decade.

The worst is not yet over. First-time unemployment claims in the weeks after the Labor Department completed its labor market survey remained high. So next month’s unemployment rate will sting.

At the White House on Friday, Kayleigh McEnany, the press secretary, said the president had created the “hottest economy in modern history” before the pandemic and would do so again. The rebuilding can’t come soon enough for those already suffering from the failure to better manage the pandemic.

“All these people experiencing it have had a whiff of fear,” said Chernow. “They’ve had a foretaste of what it’s like to be deprived of your normal place in society. That’s not something they’ll easily forget.”