By Mark Schniepp and Ben Wright
April 9, 2020
The U.S. unemployment rate climbed to 17.3 percent during the week ending April 4, an astonishing development that has surpassed all but the most extreme expectations.
Since mid-March, there have been 17 million initial claims for unemployment insurance, almost half of the total throughout the entirety of the 2008-2009 recession. We estimate that there are now at least 28 million people who are effectively unemployed, but the actual figure could be higher.
We keep discussing this situation as unmatched, unparalleled, and unprecedented, because there’s really no other way to describe it. The unemployment rate has risen from 4.4 percent to 17.3 percent in just three weeks, and while most of the world is beginning to grasp the potential depth of this contraction, the historical comparisons remain mindboggling.
In 1933, almost four years into the Great Depression, the unemployment rate reached 24.9 percent. We’re fast approaching a similar situation, and if the number of unemployed residents surpasses 35 million, the unemployment rate will almost certainly set new records. It’s possible we could get there by the end of May.
It’s also possible that the relief bill could cause the unemployment rate to head back downward. As the rescue program loans are disbursed, employers may begin to effectively rehire the workers that had been laid off, removing people from the ranks of unemployment. It will be important to follow this situation closely.
The unemployment rate in California is now estimated to be 17.0 percent, with more than 2 million residents applying for unemployment insurance since mid-March. We believe that California now has at least 3.3 million residents who are effectively unemployed.
Job loss of this magnitude typically has a profound impact on incomes, but unemployment benefits will cover a substantial portion of lost earnings.
In California, unemployment benefits usually cover half of a person’s previous salary, up to a maximum of $450 per week. But now that the federal government is adding an additional $600 per week for everyone receiving benefits, the income of many individuals will go up.
In total, we estimate that $9.7 billion of earnings have already been lost in California, and once the federal supplement of $600 per week begins to be administered (possibly as early as this week), approximately 82 percent of lost income could ultimately be replaced.
The state of California provides unemployment benefits that range from $40 to $450 per week, depending on previously earned income levels.
The new federal unemployment fund provides $600 per week to all recipients, regardless of prior income.
Under these programs, anyone in California who was making less than $54,600 should earn more from unemployment benefits than they were earning on the job, not accounting for non-cash compensation like health insurance and retirement contributions.
Reprinted by permission from Mark Schniepp, head of the Goleta-based California Economic Forecast, an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
Posted April 10, 2020.