The Permanently Unemployed is Worth Thinking About

Last week, the Bureau of Labor Statistics reported figures on what has become known as the permanently unemployed. These are individuals that – at least during this recession – start out being classified as temporarily let go to being classified as unlikely to return to their previous employer.

The permanently unemployed figure stands at 3.4 million and rising. It is the rising part that presents a concern. If the pandemic was a transitory shock, then many of these jobs that are being classified as permanently unemployed should be turning into rehires. That hasn’t happened yet.

Of course, the rising number of permanently unemployed is not all bad news. When comparing with the 2008 Great Recession, the current number of permanently unemployed looks quite favorable. The number of permanently unemployed peaked at 6.8 million during the last go around. At 3.4 million, the American economy is far from that peak.

There is, of course, a large caveat to comparing the Great Recession to what some have called the Great Lockdown. The difference is that it took 24 months to get from the trough to the peak in the permanently unemployed. If that story repeats itself, then that means the American economy will continue to see increases in the permanently unemployed until February 2022. Not a pretty picture if that’s what is in store over the next 17 months.

What Can Avoid Such a Runup?

With this background in mind, what could help the American economy avoid such a future? The answer likely lies in two things – business expectations and more economic stimulus of the tangible form.

Addressing the first issue, businesses do not hire when they are uncertain about the economic landscape. This is especially true for bringing on permanent employees. Businesses need confidence that future conditions will be strong enough to absorb the additional labor costs. The American economy is not there yet.

The latter question is political in nature. The first round of economic stimulus took the form of forgivable loans known as the Payroll Protection Program, direct payments to households of $1,200 per adult and $600 per child, support for local government, an additional $600 per unemployed worker payment, and many other supportive measures.

These kept the American economy from falling into the 21^st Century’s version of the Great Depression. The policy moves, though, came with critics. Among them are those that mention the massive increase in government payments. The Census Bureau recently released figures on government transfer payments. Governments (mostly the federal government) now accounts for a quarter of all income in American households. That’s right – a full one quarter of all income comes from the federal government. This should make proponents of individual responsibility and free-form capitalism a little nervous.

But does the American economy need another round of stimulus? Given the current economic landscape, the answer is almost assuredly yes.

Summing Up

The American labor market is improving, although dark clouds still hang over a large portion of its workers. Without further support from government officials in the form of economic stimulus or improved business expectations of future demand, the dark clouds could turn into something worse. The world needs more than just animal spirits from investors, it needs tangible optimism that leads to real, permanent hiring.