New data on initial unemployment claims show that 4.4 million American workers filed for unemployment insurance in the week ending April 18, according to the Department of Labor. That brings the total count of initial unemployment claims up to 26.4 million in the last five weeks of Department of Labor data, an unprecedented rate of job loss for the American economy.
The U.S. real-time unemployment rate climbed to 21.4 percent on the initial claims data, based upon 50 Economy labor market estimates. The current crisis demands public policy innovation to clear out hurdles to business formation and new employment opportunities.
Initial claims have decreased week-over-week for three weeks in a row. But the total count of unemployed American workers continues to climb rapidly even as initial claims slow down.
The real-time unemployment rate is calculated using March BLS data as a baseline. However, the BLS data are adjusted to count more than 1 million March work force dropouts as unemployed, recognizing that they technically categorized as out of the workforce but they are effectively unemployed. This baseline unemployment count is combined with 5 weeks of initial unemployment claims from the Department of Labor to arrive at the total count of unemployed. In sum, 35 million Americans are estimated to be unemployed by this calculation.
The federal CARES Act was signed into law in late March and provided more generous unemployment insurance benefits for a broader set of workers. The federal portion of the unemployment benefit was increased to a more generous $600 per week, and self-employed and gig-economy workers were allowed to use the program. These changes increased the number of claims made because workers have more incentive to apply for more generous benefits, and more workers are eligible for the benefits. In addition, unemployed workers face long odds of finding a new job now during the business shutdown.
State unemployment insurance trust funds risk insolvency as a result of incredibly weak economic conditions and increased incentives to use the program.
The coronavirus pandemic is dramatically depressing economic activity, consistent with economic research that showed the 1918 influenza pandemic depressed local economies where the virus spread most. The best case scenario for American families and businesses is that federal benefits can carry them through the worst of the crisis, and then safe strategies can be executed to reopen the economy. Americans can then resume their past economic activities and work on new jobs and businesses.
Re-opening strategies should be coupled with public policy packages that make it easy to start businesses and find new jobs. State and local red tape that has grown up around the modern economy needs to be cleaved back, and the tax code needs to be configured to incentivize new investment. Private sector disruption should be offset by public policy innovation so that the private economy can eventually come back stronger than ever.