Stay-at-home orders are not the sole cause of damage to the economy during the COVID-19 pandemic, a University of Rochester economist contends. As a result, lifting these orders will not trigger a swift recovery.
While these state-level directives contributed to dramatic spikes in unemployment claims and contraction in job vacancies, argues Lisa Kahn, an economics professor at UR, the labor market’s deterioration is a national phenomenon driven by a national crisis.
(Photo: University of Rochester/J. Adam Fenster)
In a National Bureau of Economic Research working paper, Kahn and her coauthors provide an analysis of two factors: initial unemployment insurance claims and job vacancies. While the jobless claims indicate lost jobs, vacancy data reflect employers’ outlook.
As unemployment filings rose through the second week of April, job vacancy postings declined by 30 percent compared to the level at the beginning of the year.
California on March 19 became the first state to issue a statewide shelter-in-place order. New York’s directive took effect March 22; by March 30, 32 more states had similar orders.
Yet, the NBER paper notes, “the labor market collapsed at the same time across the U.S. irrespective of the state-level policies imposed. There is very little evidence that labor markets in states that were hit more heavily by the epidemic or that imposed stay-at-home orders earlier were differentially affected.”
Since mid-March, more than 36 million Americans have filed for unemployment, including 2 million in New York. In the Finger Lakes region, 104,016 claims had been filed as of May 9. The local claims peaked at the end of March, but weekly totals continue to far exceed year-ago levels.
The unprecedented weakness in the labor market has occurred across all U.S. states, regardless of the initial spread of the coronavirus and the timing of stay-at-home orders, the NBER paper notes. It also has taken place across industry sectors, essential and nonessential categories, and those with work-from-home options. Only essential retail and nursing were exceptions.
“Even before we had these stay-at-home policies, people were being urged to avoid restaurants and large-group gatherings in order to avoid getting or spreading the disease,” Kahn says. “On top of that, people were nervous about whether they would be able to keep their jobs in the impending crisis. All those factors—not solely the orders keeping people at home—combined to generate the collapse in economic activity.”
The Finger Lakes region began its first phase of reopening last Friday. Businesses covered under phase one include manufacturing, commercial and residential construction, and retail (limited to curbside or in-store pickup or drop off). The impact of the reopening on the labor market may be limited by the fact that statewide, the most dramatic increases in jobless claims during the pandemic have occurred in other industry categories—such as accommodation and food services, retail trade, health care and social assistance, and unclassified (including gig workers).
Kahn believes consumer confidence is a big factor in restoring the economy.
The most recent data from the Conference Board shows the Consumer Confidence Index deteriorated further in April, following a sharp decline in March. The Index in April stood at 86.9 (1985=100), down from 118.8 in March. The Present Situation Index, which reflects consumers’ assessment of current business and labor market conditions, fell from 166.7 to 76.4.
“The 90-point drop in the Present Situation Index, the largest on record, reflects the sharp contraction in economic activity and surge in unemployment claims brought about by the COVID-19 crisis,” noted Lynn Franco, senior director of economic indicators at the Conference Board.
Consumers’ short-term outlook for income, business and labor market conditions, however, saw an improvement. The Expectations Index rose to 93.9 in April from 86.8 in March.
Still, Kahn warns that even if COVID-19 cases drop significantly, employers and workers might worry about the upcoming flu season. In addition, as consumers watch their wallets in a contracted economy, the demand for goods and services has declined.
In their paper, Kahn and her coauthors expect the downturn to be lasting, given the broad-based nature of the labor-market retrenchment.
“The current damage done to the economy is not solely caused by the stay-at-home orders; it is too large and pervasive,” the paper states. “Therefore, it is unlikely to be undone simply by lifting these stay-at-home orders.”
Smriti Jacob is Rochester Beacon managing editor. Paul Ericson is executive editor. All Rochester Beacon coronavirus articles are collected here.