The Economist 04Apr2020

32 United States The EconomistApril 4th 2020

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n august 2005the unemployment rate

in Louisiana was 5.4%, close to its all-

time low. Then Hurricane Katrina hit. The

storm destroyed some firms, while others

were forced to close permanently. Within a

month, Louisiana’s unemployment rate

had more than doubled.

Now America as a whole faces a similar

shock. From a five-decade low, early data

suggest unemployment is shooting up-

wards, as the onrushing coronavirus pan-

demic forces the economy to shut down.

Millions of Americans are filing for finan-

cial assistance. The jobs report for March,

published shortly after The Economistwent

to press, is a flavour of what is to come—

though because the survey focused on ear-

ly to mid-March, before the lockdowns

really got going, it is likely to give a mis-

leadingly rosy view of the true situation.

How bad could the labour market get?

gdp growth and the unemployment

rate tend to move in opposite directions.

Unemployment hit an all-time high of

around 25% during the Great Depression

(see chart). The coronavirus-induced shut-

downs are expected to lead to a year-on-

year gdpdecline of about 10% in the second

quarter of this year. Such a steep fall in eco-

nomic output implies an unemployment

rate of about 9% in that quarter, based on

past relationships, which would be

roughly in line with the peak reached dur-

ing the financial crisis of 2007-09.

But the coronavirus epidemic is not like

past recessions. For one thing, hiring could

be even lower than is typical. Delivery

firms notwithstanding, surveys suggest

that firms’ hiring intentions are as low or

lower than they were in 2008. And applying

for a job is especially difficult with cities in

lockdown. Even without a single virus-in-

duced layoff, hiring freezes would lead to

sharply rising unemployment. For in-

stance, young people entering the labour

market for the first time now would strug-

gle to find work.

The decline in gdpassociated with the

lockdowns is also particularly concentrat-

ed in labour-intensive industries such as

leisure and hospitality. Mark Zandi of

Moody’s Analytics, a research firm, calcu-

lates that more than 30m American jobs are

highly vulnerable to closures associated

with covid-19. Were they all to disappear,

unemployment would probably rise above

20%. Research published by the Federal Re-

serve Bank of St Louis is even gloomier. It

suggests that close to 50m Americans

could lose their jobs in the second quarter

of this year—enough to push the unem-

ployment rate above 30%.

The numbers will probably not get that

bad. In part that is a matter of statistical de-

finitions. To be officially classified as un-

employed, jobless folk need to be “actively

seeking work”—which is rather difficult in

the current circumstances. Some people

could end up being counted as “economi-

cally inactive” rather than unemployed,

which would hold down the official unem-

ployment rate (a similar phenomenon oc-

curred in Louisiana after Katrina).

America’s economic-stimulus bill will

be a more genuine check on rising jobless-

ness. The $350bn (1.6% of gdp) set aside for

small firms’ costs is enough to cover the

compensation of all at-risk workers for

perhaps seven weeks, according to our cal-

culations, making it less likely that bosses

will let them go. Other measures in the

package should support consumption, and

thus demand for labour. In a report pub-

lished on March 31st Goldman Sachs, a

bank, argued that unemployment will peak

in the third quarter of this year at nearly

15%—an estimate that is roughly in line

with those of other forecasters.

A big jump in unemployment is less of a

problem if it quickly falls once the lock-

down ends. Louisiana offers an encourag-

ing precedent. After a few bad months in

late 2005, the state’s unemployment rate

dropped almost as sharply as it had risen,

falling in line with the rest of the country.

Whether the economy will prove so elastic

this time is another matter. Travellers and

restaurant-goers will be cautious until

some sort of vaccine or treatment is widely

available; social-distancing rules, even if

relaxed, will continue for some time. Gold-

man Sachs’s researchers reckon that it will

take until 2023 for unemployment to fall

back below 4%. The lockdowns should be

temporary, but the economic consequen-

ces will feel much more permanent.^7

How high will unemployment rise?

The labour market

Trough to peak

Where next?

United States, unemployment rate, %

Sources: Census Bureau; Bureau of Labour Statistics

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9070503019101890 2019

F

ourteen stateshave postponed pri-

maries because of coronavirus. Al-

though voters in Alaska and Wyoming will

carry on in April, their primaries now in-

volve only postal ballots. So what’s special

about Wisconsin? As The Economistwent to

press the Badger State was still planning to

hold its spring elections as usual, includ-

ing voting in person, on April 7th. The con-

tests are for the Democratic presidential

nominee and also for local offices and the

state Supreme Court.

Officials are not blasé about the pan-

demic. A “safer at home” order from the go-

vernor, Tony Evers, is keeping most people

in their houses while shutting schools,

businesses and more. “When you close

bars in Wisconsin, you know it’s gotten se-

rious,” says a parched resident. Nor is it cer-

tain the elections will be held. On April 1st a

federal judge began hearing a case—com-

bining various lawsuits—that could decide

how and when polling happens. An appeal

is likely, so a decision could drift towards

the eve of voting.

Worsening public-health and practical

troubles are overtaking the legal argu-

ments. An assessment on March 30th

found that more than half of all the state’s

counties lack the required number of staff

to run polling stations. The National Guard

may have to make up a shortfall of almost

7,000 workers, replacing volunteers who

typically are elderly and at risk of infection.

In Milwaukee, which is holding a mayoral

race, perhaps a dozen polling stations can

be manned, not the usual 180. One political

observer calls it “an unholy mess”.

CHICAGO

Wisconsin prefigures a national debate

about voting during an epidemic

Wisconsin’s chaotic elections

Petri-dish

democracy