Consensus (and the Fed’s best-case scenarios) are more optimistic than we are; we see unemployment rates above 10% this year and only marginally below that in 2021.
Barrero et al estimated that 42% of the layoffs will turn permanent and reallocation should lag job destruction by at least one year. These estimates are grounded on four potential concerns going forward: unemployment benefits exceeding expected earnings, employer payroll subsidies, licensing restrictions impeding mobility and regulations on business formation.
Mapping the Recovery
For example, we estimate the hardest-hit industries today — which include education, entertainment, travel, and food and accommodation — will not recover to pre-COVID levels of activity by the end of this year and instead will do so slowly during 2021.
Before the economic downturn, those sectors collectively employed more than 40 million workers, or roughly 25% of the labor force. We estimate that in just those sectors alone, there will be six million fewer jobs in these sectors at the end of 2020 and still four million fewer in 2021. This excess labor supply will have to be absorbed into other industries that will emerge on the other side of the recovery in positions of strength.
Those firms and industries with relatively stronger financial situations and/or better competitive positions in their markets (think video conference software) will be responsible for fewer job losses. Technology, certain subsectors of the retail industry (those businesses which can exploit growing demand for contact-free transactions), commercial services that can reallocate business lines to a post-COVID economy, and new lines of business, will recover faster. But they too have suffered severe short-term losses in demand and therefore employment.
Companies with adequate liquidity and financial positions will be able to weather the crisis better, will have to shed fewer jobs, and may be able to resume hiring sooner than firms facing financial distress or stubbornly muted demand as a result of the structural changes the crisis has created.