Coming Unemployment Crisis Plunges America’s Newly Jobless Into ‘Kafkaesque’ Nightmare

“There’s going to be some waiting, but people are going to get benefits”, Christopher O’Leary, an economist specializing in public employment at the W.E. Upjohn Institute in Kalamazoo, Michigan, told Bloomberg for a piece on the massive increase in unemployment claims across the United States.

Last month, O’Leary warned that nearly two-dozen states would struggle with empty unemployment reserve funds in the event the country fell into a deep recession. Projections for the US economy in the second quarter are for a contraction larger than any witnessed in the history of modern GDP statistics.

“O’Leary and [Kenneth] Kline find that many states’ unemployment insurance reserves don’t have enough money set aside [and] even a downturn of average severity would cause 18 states to exhaust their unemployment insurance reserves”, a summary of the study reads. “Reviewing historical data, O’Leary and Kline find that pre-recession reserves should be around 2% of total wages or 5% of taxable wages [yet], by the end of 2018, after years of economic growth, reserves were at only 1% of total wages and less than 4% of taxable wages”.

Some of the problem could be mitigated by federal spending included in the $2 trillion stimulus package agreed on Capitol Hill just after midnight Wednesday. But, some states may still be compelled to borrow from Treasury, thus incurring more debt.

One thing we know for sure: Unemployment claims are surging.

Last week, in an alarming estimate, Goldman said claims could explode to 2.25 million as virus containment measures force businesses to close and management teams ponder a scenario where the entire economy experiences an engineered shutdown. The bank’s estimates were based on 30 preliminary reports across states.

Unfortunately, Goldman’s estimate may have been too optimistic, as mind-bogglingly dour as it most assuredly was.

For example, Jacob Robbins (he’s an assistant professor at the University of Illinois at Chicago), says the total number of claims in the past week alone may hit 3.8 million for all 50 states.

Researchers from The Economic Policy Institute concur. In a Tuesday estimate, Aaron Sojourner (a research associate, a labor economist and an associate professor at the Carlson School of Management at the University of Minnesota) and Paul Goldsmith-Pinkham (an assistant professor of finance at the Yale School of Management), said the figure for the week could be 3.4 million.

“This will dwarf every other week in history, as can be seen by comparing the projection against the trend in initial claims back to 1967”, they wrote.

That’s still an astonishing visual, no matter how many times you see it.

“For scale, consider that 3.4 million Americans moving from employment to unemployment would raise the number of the unemployed from 5.7 million to 9.1 million”, Sojourner and Goldsmith-Pinkham wrote. “This alone would raise the unemployment rate by more than half, by 2 percentage points from 3.5% to 5.5%, moving back to 2015 levels in just one week”, they went on to say, adding that “the largest monthly rise in the unemployment rate in American history was plus 1.3 percentage points in October 1949″.

Meanwhile, websites are crashing due to the sheer volume of claims.

“A message on the Michigan website Tuesday afternoon pleaded for patience… Ohio apologized on Twitter for problems at its website” and Louisianans filed so many claims last week “they crashed the website and the phone system”, Bloomberg recounts, in the post linked here at the outset.

Politico tells a similar story in a piece published Tuesday. “In New York, the state Department of Labor has been crushed by the influx of people filing for unemployment, leading to numerous website crashes, prolonged call wait times, and out-of-work people struggling to get through”, the article reads. “On Monday the department reported receiving more than 1.7 million calls and 2.2 million hits to its website over a weeklong period and has been increasing server capacity and beefing up phone staff to handle the deluge”.

Little wonder the Labor Department ordered state officials “to do nothing more than ‘provide information using generalities to describe claims levels until the department releases the total number of national claims next Thursday”. (That’s according to a letter leaked to The New York Times last week.)

All of this leaves the newly-jobless facing a “Kafka’s castle” scenario. Alan Conner, a restaurant owner in Georgia who was forced to let a dozen employees go earlier this month, is apparently well read. After a two-hour struggle with the state’s online system, he described his plight as “kind of Kafkaesque” in remarks to Bloomberg.

Sojourner and Goldsmith-Pinkham have released another study (via Sojourner’s website) that includes a model incorporating Google Trends data.

“For the week ending March 21, the model predicts initial UI claims nationally between 3.25 and 3.4 million, depending on exact specification”, they write.

Again, that implies a 2 percentage point jump in the unemployment rate in just a single week. They note that the range of their confidence intervals depends on assumptions, with the widest range from 2.2 million to 4.2 million and the less conservative range between 3 million and 3.4 million.

The bottom line, from Sojourner and Goldsmith-Pinkham, is that “this looks to be the week with the largest number of initial claims and the largest rise in unemployment in US history”.

Speaking to Politico, Chas Alamo, principal fiscal and policy analyst for California’s nonpartisan Legislative Analyst’s Office, was blunt. “Unprecedented is an understatement”, he remarked. “We’ve never seen anything like [this]”.