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The Job Market’s Long Road Back


The Job

Market’s Long

Road Back

 

 

The vast majority of people laid off this spring assumed they’d be back at their jobs fairly soon. It is becoming more clear now that for many, that was wishful thinking.

Even as states encourage a return to pre-Covid-19s normalcy, restaurants, factories and other businesses are increasingly saying they either won’t open when allowed, or will do so with reduced staff. Federal Reserve Chairman Jerome Powellhas warned that the U.S. economy could take more than a year to recover.

The closures were sudden and swift. In February, the unemployment rate was at a 50-year low at 3.5%, and many employers worried about being able to attract workers. Weeks later, the largest mass layoffs since the Depression were under way.

A signature feature of this crisis was its blizzard of confusion. States and employers, faced with the uncertainties of a new disease, took placeholder measures they hoped would be temporary. Government programs aimed to encourage employers to keep workers on their payrolls. Now, some forecasts estimate that of the more than 21 million workers laid off in March and April, only about half might be able to return to their old jobs.

The psychological shift to the new landscape has taken some time to sink in.

Lockdowns were first billed as short-lived. Even when they were extended, many companies preferred to furlough workers rather than cut ties permanently. Laid-off workers don’t normally feel very upbeat that they’ll get their jobs back. But of those unemployed due to job loss in April, 88% called their absences temporary, according to the Labor Department, meaning they anticipated returning to the same job within six months.

Pie in the Sky

In normal times, most laid off workers don’t expect to come back to the same job. But as businesses abruptly closed this spring, the vast majority of those let go saw their job loss as only temporary, hopes that are now fraying.

Reason for unemployment among those who lost their job

April 2020

88% anticipated returning to the same job within six months

April 2020

Temporary:

88%

April’s reading, the most optimistic since records started in 1967, suggests many left their jobs with a promise they’d be back.

Since then, several national retailers have filed for bankruptcy protection.

J.C. Penney Co.,

which closed its stores on a temporary basis in March, said Monday it will permanently close 240 locations, or nearly 30% of stores.

Pier 1 Imports Inc.

reversed a plan to reopen some stores by June 1, instead closing stores for good.

Goodyear Tire & Rubber Co.

recently said it would close an Alabama plant after temporarily suspending operations there and at other U.S. factories in March.

Permanent layoffs are likely at more factories, as consumer spending declines. Airlines have warned employees on paid leave that they could be cut this fall as forecasts suggest full recovery of robust travel might take years. And in communities across the country, restaurants and other small businesses are closing up shop for good.

Kimberly Smith was furloughed from her job as a server and supervisor at the Hard Rock Café in Boston in March, around the time that Massachusetts ordered nonessential businesses to close. Then, in late April, she received a notice in the mail that she had been permanently laid off. “To get that letter was just devastating,” says Ms. Smith, 47 years old.

Kimberly Smith was furloughed from her job at the Hard Rock Cafe in Boston in March. In April, she was permanently laid off.



Photo:

Kimberly Smith

She tried driving for

Lyft

part-time, but so few customers wanted rides that she stopped. Diagnosed with breast cancer in February, she also didn’t want to take chances with her health. She has health insurance through the state, and hopes that her seniority may help her chances if the restaurant calls workers back once operations resume. Hard Rock declined to comment.

Mikel Blair’s business vanished in two hours. On March 7, a Saturday, she had 25 birthday parties scheduled for the weekend at her indoor playground, Badlands in Rockville, Md. Two parties went as planned. But during the second, at about 10:30 a.m., she realized parents were talking about how this was likely their last social outing for a while. Other families were calling to ask if their parties would be canceled.

“It didn’t feel like it was safe to be open,” she said. She started calling other customers to cancel bookings. “By noon on Saturday, we were closed.”

Mikel Blair doesn’t think she can reopen her indoor playground until 2021.



Photo:

Kate Cahill

She furloughed some employees but managed to keep some on to help sell milk, eggs and the company’s stock of beverages in the playground’s parking lot. After reviewing Maryland Gov. Larry Hogan’s May 11 “Roadmap to Recovery,” with safety guidelines for the near term, she determined that she won’t be able to reopen until 2021.

Her entire business model is incompatible with current social-distancing guidelines. “You can’t disinfect a slide every time someone goes down it,” she said. “You can’t expect kids to play with masks on.”

She has laid off 55 full- and part-time employees indefinitely.

Gregory Daco, chief U.S. economist at Oxford Economics a U.K.-based forecasting and consulting firm, forecast that about half of workers laid off or furloughed in March and April, or at least 10 million people, won’t be returning to their old jobs, or roughly the same number that permanently lost jobs in the 2007-09 downturn. His forecast considers that in recessions since World War II, most layoffs have been permanent, and that several large employers have signaled that recent temporary layoffs are becoming permanent.

He expects job losses due to the pandemic shutdowns will total 30 million.

In 2007, the recession built gradually over months and years. Furloughs were a lot less common. The crisis caused by the pandemic is different. The equivalent number of jobs created in the last decade–about 20 million–were lost in a single month.

University of Chicago economist Erik Hurst noted that employment has fallen by 22% in recent months. In no recession since World War II did employment fall by more than 2% in the first three months of a downturn.

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In economics, the term hysteresis describes when a temporary loss becomes permanent even after the shock that caused the loss in the first place has disappeared.

That doesn’t mean tens of million of Americans will be forever jobless. Many will find positions elsewhere, perhaps moving from stores and restaurants to online retailers’ warehouses and delivery services.

The virus-induced shock has created its own job opportunities, leading to about three new hires for every 10 layoffs, according to Federal Reserve Bank of Atlanta researchers.

Walmart Inc.

said Tuesday it hired 235,000 new hourly workers to help it meet increased demand.

Amazon.com Inc.

and

CVS Health Corp.

have also announced hiring plans.

But for many workers, the transition will take time. “It will be years before we recover all the jobs lost,” Mr. Daco said.

The jobless rate, which was 14.7% in April, is expected to remain well above anything seen since records started after World War II through this year, according to a May 8-12 Wall Street Journal survey of 64 economists, which forecast the rate will be 11.4% in December. The nonpartisan Congressional Budget Office sees unemployment peaking at 15.8% this summer and ending 2021 at 8.6%.

Reverse Course

Before the pandemic, the job market was so strong many employers worried about attracting new workers. Now, projections are for unemployment to remain at record levels all of this year and stay elevated through 2021.

Unemployment rate, quarterly

3Q 2020

15.8% unemployment rate projected

3Q 2020

15.8% unemployment rate projected

3Q 2020

15.8% unemployment rate projected

The April shelter-in-place orders caused especially great devastation in the hospitality and retail sectors, which together accounted for nearly half of all jobs lost.

Employers operating restaurants brands like

Cheesecake Factory

and

Outback Steakhouse

and retailers like

Ross Stores Inc.

have told states about plans to reduce hours or furlough thousands of workers in recent weeks. All say they plan to bring back employees.

Restaurants have been extra hard hit by lockdown measures.



Photo:

Douglas R. Clifford/Tampa Bay Times/Zuma Press

Employers filing mass-layoff notices with states ranged from nonprofits like Goodwill and YMCA family centers to oil-field service giant

Halliburton

and

United States Steel Corp.

The ripple effects of 10 million or more jobs permanently lost rule out any hope of a quick economic bounceback. People who aren’t reporting to work don’t pay for child care or gas, skip eating out or making big-ticket purchases, such as a new car. And many won’t go on vacation even when travel is allowed again.

Restaurants’ prognosis is especially dire. As a rule, they have small margins and fail at rapid rates even in economic booms. Seating half as many diners as before—as required in some reopening scenarios—just isn’t a viable option for many. And even if all restrictions lift, how comfortable people will feel in a crowded restaurant is an open question.

“There are a lot of people whose jobs depend on more than five people being in the same room at the same time,” said Martha Gimbel, manager of economic research at Schmidt Futures.

Most states are taking some steps to reopen, and workers are being recalled. Auto factories in Michigan reopened over the past week. Gyms are cleared to operate in Georgia and Tennessee. Texas and other states are allowing movie theaters to open, with limited capacity. But those rehires won’t come close to offsetting the millions of jobs lost in May.

YMCAs around the country have warned about layoffs.



Photo:

Mark Humphrey/Associated Press

And the broad belief of returning to the same job that the Labor Department documented this spring reflects false hope, said Ms. Gimbel. “A lot of these temporary layoffs occurred at businesses that are now gone.”

A separate April 26-May 2 survey overseen by economists Alexander Bick, of Arizona State University, and Adam Blandin, of Virginia Commonwealth University, gives a greater sense of apprehension among those dismissed from their jobs. In that survey, intended to give an early glimpse of the state of the job market ahead of the Labor Department’s job report each month, more than 35% of those temporarily laid off said they either don’t expect to return to their old jobs or are unsure whether they will. Among those who called their layoffs permanent, half expressed uncertainty or no expectation they’d be rehired.

In California, which requires companies to declare if mass layoffs are temporary or permanent, temporary ones accounted for about 90% of announced layoffs in late April. By the week ended Monday, the share had shrunk somewhat to 78%.

Jordan Shain, 38, expected to be out for a month or two when he was furloughed from his job inspecting titanium parts used in jet engines at Whitcraft Group in Scarborough, Maine. Then on April 29 he learned that he and about 130 machinists, engineers and others would lose their jobs permanently.

Jordan Shain expected to be out for a month or two. In April he was shocked to learn he had been permanently laid off.



Photo:

Cindy Shain

“This is just a shock,” said Mr. Shain. He worked at the plant for eight years and felt secure at a business he thought was doing well.

Whitcraft’s Chief Executive Doug Folsom said the plant in Scarborough was one of the company’s best performing. In March, as the pandemic spread, the company estimated a drop of between 30% and 50% for engine components from the plant and put employees on rotating furloughs. A few weeks later, he learned a customer wouldn’t buy any components through the rest of the year from the Scarborough plant and that demand would be low in 2021.

He said the company, which makes other precision components for the aerospace and power generation industries, might have shifted another product to Scarborough if it had had more time. But the business was burning through cash too quickly and shutting the operation was the right move for remaining employees and shareholders, he said. The South Windsor, Conn., company will close another plant in Arizona, eliminating 40 more jobs. It laid off 20% of its remaining workforce, or about 230 people, at its nine other locations.

“I feel horrible for the very talented employees that are affected by this,” Mr. Folsom said. “I get the feeling we’re on the front end of this thing.”

Mr. Shain, who earned $23.81 an hour, said he is now looking for work, including at delivery companies, while trying to get health insurance for himself, his wife and two children and keep up with car payments, a student loan and other expenses.

Vaughan Hospitality Group, which operates seven Irish pubs in Chicago, was preparing to open its seasonal Riverwalk location in time for St. Patrick’s Day. Instead it had to close all its bars and lay off 160 workers.

“I thought we’d be closed for two weeks,” said owner Kristan Vaughan. Now she doesn’t plan to reopen until July, but said, “I can’t bring everyone back.” At least one of the pubs will stay closed because it’s too small to operate profitably at the 25% capacity level state officials have proposed.

Kristan Vaughan can’t hire all her employees back when she reopens her bars in Chicago.



Photo:

Dustin Yoder

Before the pandemic, Austin Sweet, 28, patched together 60 or 70 hours of work every week as an audio engineer, juggling part-time and freelance gigs in the Dallas-Fort Worth area. But in late winter, the work began drying up as concerts and conventions were canceled.

One of Mr. Sweet’s employers, a small firm that supplied audio equipment and engineers for corporate events, laid off staff in early March. Two weeks later, he was told the layoff would be permanent.

“My industry doesn’t exist right now,” he said.

Austin Sweet with his cat Kai at his home in Dallas.



Photo:

Austin Sweet

Write to Eric Morath at eric.morath@wsj.com

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