Unemployment driven by the coronavirus shutdowns will be worse than during the Great Recession of a decade ago, economists say. Some 18 million Americans who want to work will likely be out of a job by summer, triple last winter’s unemployment.
That’s one in nine U.S. workers, compared to one in 10 during the last financial crisis, according to the national spending scholars who run the Penn Wharton Budget Model program at the University of Pennsylvania.
And it could have been even worse — with unemployment rising to 12% and growth at an annualized minus 37% — without the newly enacted $2.2 trillion coronavirus economic rescue package.
That rescue bill, passed after vivid but brief partisan bickering by Congress and signed by President Donald Trump late last month, gives $560 billion to Americans through per-person grants and increased unemployment compensation; lends $500 billion to big corporations; provides $349 billion in “forgivable” loans to small businesses that keep paying workers; and grants more to hospitals, states, and towns.
Members of Congress are already arguing over additional aid, such as another $250 billion in forgivable loans, and a larger program that could upgrade aging roads, bridges, ports, and airports — assuming the government can keep borrowing trillions of dollars from investors in U.S. Treasury debt at the current low interest rates.
The business aid is supposed to avoid layoffs. The Penn Wharton Budget Model estimates the rescue package will save only about 1.5 million of the country’s 160 million private-sector jobs, which would otherwise vanish by September. (The projected jump from 4% unemployment to 11% implies more than 10 million jobs are going away, even with federal aid, as restaurants, shops, specialty medical practices, and other employers shut.)
The budget model analysts based their review on their own short-term model of the effect of large-scale spending, plus the “fiscal multipliers” of government spending the Congressional Budget Office used to measure the impact of the 2009 American Reinvestment and Recovery Act passed under President Barack Obama. That was a more modest attempt to jump start the economy.
The analysts noted that lower-income people and the newly unemployed tend to spend government aid rapidly, boosting the economy quickly. Wealthier people and institutions, by contrast, tend to hoard money at a time when few productive investments are being made, so their tax breaks and other benefits do not go as far toward boosting the economy.
But some of the most efficient government spending in today’s environment, in terms of its impact on the economy, is “direct government spending on goods and services, focused primarily on infrastructure and health care,” since hospitals and states “will quickly spend the money.”
The Wharton team said few businesses are likely to invest their loans or grants by expanding so long as their customers and employees are under orders to stay at home. But by helping some slow businesses stay open at all, they will help keep the economy afloat.
Given those assumptions, the report estimates: