E The Real Cost Of The Pandemic Is Permanent Job Loss

It is one thing to anticipate temporary job losses during a worldwide health crisis, but the real losses occur when workers no longer expect to return to work and permanent job losses mount. Today, the good news is that the US unemployment rate fell from 6.9% to 6.7% in November; the Canadian rate similarly fell by 0.4 percentage points to 8.7%. Although the increase in actual hiring was positive, the rate of increase was disappointing in both countries. But we should expect job growth to slow down since both countries are now experiencing a dramatic increase in coronavirus cases and various jurisdictions are beginning to enter into different degrees of lockdown.

Initially, when it became apparent that we were, indeed, in a pandemic starting last winter, many economic observers re-assured the financial markets that we would experience a V-shaped recovery---- a sharp drop in employment and an equally sharp rise in jobs within a few months. The job losses were just temporary, it was assumed. Hence, thousands of companies furloughed employees, governments provided short-term income support programs and corporations adopted the approach that we will return to normal activity in the not too distant future. Alas, with the second wave of infections, we realize that job recovery will be slow, and no longer can we expect a quick snapback, despite the near-term prospects of a vaccine.  Indeed, it is no longer certain that all job losses will be reversed.

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US Cumulative Job Loss

More importantly, there is a dramatic change in the labor market participation rates. The number of adults of working age who are no longer seeking jobs is on the rise. This is the first indication that the pandemic will have lasting effects on the economy. The share of prime workers in the US--- those between 25 and 54 years of age--- has dropped from 81% in February to 76% in November. Put differently, the statisticians estimate that the number of people who are not in the labor market but have indicated that they want a job is over 2 million higher than it was in February. Another revealing measure is that there has been a steady increase in the number of workers who have been without work for 6 months or more. The Canadian experience is similar with one-quarter of the unemployed being out of work for more than 27 weeks or longer.

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