Another 3.8 million people applied for unemployment benefits last week, pushing the number of corona virus-related job losses past 30 million, the Labor Department announced Thursday.
Although new jobless claims fell for the fourth week in a row, the sheer size of the numbers highlight the unprecedented nature of the current economic crisis. Economists estimate that the unemployment rate could be somewhere in the range of 20%, a level not seen since the Great Depression.
No sector untouched: Layoffs hit hotels and restaurants first, The Washington Post’s Andrew Van Dam says, but have expanded into other sectors with each successive week. Job losses have now affected manufacturing, construction and retail; management, finance and insurance; and oil, gas and mining. Now public service jobs are beginning to feel the pain, as states move to balance budgets reeling from plummeting tax revenues.
State funds going broke: The overwhelming number of people claiming jobless benefits is rapidly draining state unemployment funds. New York Gov. Andrew Cuomo said earlier this week that his state could soon run out of funds, having paid $3.1 billion in benefits between March 9 and April 22 to more than 1.4 million workers. “[T]hat’s why federal government has to provide funding, we don’t have money,” Cuomo told reporters.
A February report from the Labor Department showed that 21 states – including California, Texas, New York, Illinois, Ohio and Pennsylvania – had less than the minimum recommended amount in their unemployment reserves to handle a recession, Bloomberg reported Thursday, and some states have already started requesting loans from the federal government to cover benefit payments. Federal loans to states are not unusual during recessions, and the $2.2 trillion stimulus bill included terms that waive interest on such loans through December.
Europe takes a different path: The unemployment rate is climbing less in Europe than in the U.S., The Washington Post’s Michael Birnbaum reports, due in large part to the different approach taken by the region’s governments. “Many European governments have implemented a subsidy program, pioneered by Germany in the last global recession, under which they pay up to 87 percent of salaries for workers sent home but kept on payroll,” Birnbaum says. As a result, there have been fewer layoffs as government shields both workers and businesses from the severe economic dislocations seen in the U.S.
Still, economists say that the European approach may be effective but it does carry risks. The direct costs are high and the subsidy program would be challenging to operate over a long period of time. In the end, it’s not clear that a federal subsidy can fix the economy if demand remains depressed over the long term.