A key question about the economic recovery remains unanswered: Morning Brief

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Monday, August 24, 2020

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How many temporary layoffs are really temporary?

Even though the initial economic snapback following the intense early days of the coronavirus outbreak has been better than expected, most measures of the economy remain far below pre-pandemic levels. And a full recovery seems unlikely until the world gets a vaccine for COVID-19.

The longer the coronavirus remains a risk, the longer the economy will be held back. And that means more of the temporary damage to the economy becomes permanent.

One specific question that remains unanswered: How many workers “on temporary layoff” will become “permanent job losers.”

When the April jobs report came out, we learned the number of workers on temporary layoff spiked to 18.1 million from 1.8 million in March. Because the situation was characterized as temporary, the stat was considered a glimmer of hope as it suggested many of those laid off would have jobs waiting for them as lockdowns and quarantines were lifted.

As of the July jobs report, 9.2 million—56% of unemployed workers—considered themselves as on temporary layoff.

“Although the high share of workers on temporary layoffs suggests scope for additional large job gains later this year, the extended unemployment duration for most temporarily laid off workers—60% of who have been unemployed since April—raises questions about how many temporary layoffs are really temporary,” Goldman Sachs economist Joseph Briggs wrote in a note to clients on Friday.

Briggs points to a number of flags that raise doubts about how many of these people will return to work. For example, an unusually high 84% of those on “temporary layoff” have been out of work for at least five weeks as of July, down from an even higher 90% in June; this is over 20 percentage points higher than the previous high during the 1981-82 recession.

“These patterns raise questions about how many of the current temporary layoffs are really temporary,” Briggs said. Though he notes that studies show that folks on extended periods of temporary unemployment still face better hiring prospects than those who were permanently laid off by their employers.

The economist also pointed to a recent AP-NORC poll, which found an increasing number of those on temporary layoff were doubtful that they would actually be called back to their jobs.

According to Goldman Sachs analysis, 25% of workers on temporary layoff have doubts they will be recalled.

“[O]ur analysis suggests almost a quarter of temporary layoffs will become permanent, implying scope for roughly 2mn (or 1.25% of the labor force) of these individuals to remain unemployed well into next year,” Briggs concluded.