Since March, 22% of American workers lost their jobs. How can we begin to think about such unprecedented labor market deterioration? Erik Hurst studied who has stopped receiving a paycheck, and provides context to the staggering unemployment numbers. Then, Joseph Vavra shares his work on one of the most critical hurdles for parents to get back to work – childcare.
Using data from ADP one of the world’s largest human resources management companies, to measure changes in the US labor market during the early stages of this “Pandemic Recession,” Erik Hurst, et al., find that paid US employment declined by about 22% between mid-February and mid-April, 2020. This translates to a reduction in US employment of about 29 million workers as measured in the payroll data. In no prior recession since the Great Depression has US employment declined by a cumulative 2% during the first three-months of the recession. Across all prior recessions since the 1940s, peak employment declines were never more than 6.5%. The US economy has already experienced a 22% decline in employment during the first month of this recession.
Using 2018 data from the Census Bureau’s American Community Survey, Joseph Vavra, et al., calculate the share of employed households who are affected by childcare constraints. They focus on the civilian employed population older than 18. The first row in Table 1 shows that 32% of that workforce has someone in their household who is under 14. Thus, 50 million Americans must consider childcare obligations when returning to work. Daycares and preschools might open sooner than primary schools, since they tend to have fewer children and thus less scope for disease transmission, so the remaining columns of Table 1 distinguish children under 6 and those 6-14 years old. For about 30% of the workforce with childcare requirements, all of their children are under the age of 6.
TESS VIGELAND: According to the Bureau of Labor Statistics, the BLS, a staggering number of people lost their jobs last month– more than 20 million.
EDUARDO PORTER: And according to new economic research, that’s just the tip of the iceberg.
TESS VIGELAND: This is Pandemic Economics, a podcast about the global impact of COVID-19 from Stitcher and the Becker Friedman Institute for Economics. I’m Tess Vigeland.
EDUARDO PORTER: And I’m Eduardo Porter. We’ve been invited to have this series of conversations with University of Chicago economists.
TESS VIGELAND: In this episode, we’re going to dig into some of the specifics. Who exactly has stopped collecting a paycheck?
EDUARDO PORTER: And we’ll look at one of the most critical hurdles for parents to get back to work– childcare. You may have seen ADP’s name on a paycheck. They’re the world’s largest HR management company. I spoke with Erik Hurst about what he’s learned using their payroll data. Your data is saying that the jobs that the government says we’ve lost is probably an undercount.
ERIK HURST: Correct. There’s some people who are reporting themselves employed, but not working, in shuttered businesses. Now, maybe they are employed, but they’re still not working. They’re on layoff. But they might expect to go back to their job when the job reopens. And you could see that in the BLS data. They put out numbers on historically high levels of people who report being employed, but not working during the survey week.
EDUARDO PORTER: We know we’re in a really bad spot. But this data gives us more richness here. So what does it tell us about the scale and the structure of the economic shock?
ERIK HURST: The data that we could measure employment from. We’re measuring employment from paychecks. We have who got paid last week. And if you didn’t get paid last week, it tells us you lost your job sometime between then and the prior pay period. So our data runs through measuring employment through– think about it as late April.
And so far, we’re estimating 30 million jobs have been lost. That is a massive amount. Since the first week of March, 22% of workers have lost their jobs. 22%– that is staggering.
And if you look at every other recession in the US history since World War II, the maximum employment lost during the first three months of the recessions that we’ve had since that time? The maximum was 1.5%. So when you’re thinking about is this recession different than other recessions, the two things that are different are both the scale and the speed. 22% of all workers have lost their job, and it has occurred roughly in a five to six-week period. It just blows my mind when I look at it.
EDUARDO PORTER: The event that most people are comparing this to is the Great Depression of the ’30s.
ERIK HURST: Yeah.
EDUARDO PORTER: Is that on this scale?
ERIK HURST: The Great Depression had one thing that we don’t know if we’re going to have yet, which is duration. So the Great Depression started in 1929 and kind of wrapped up in 1933. So you had four years of economic contraction.
And then the unemployment rate, in the second year of the Great Depression, was somewhere around 14%. In the third year, it was up around 24%, 25%. That puts us at where we were in the middle of the Great Depression.
Now, the Great Depression is a depression because of its length. We had declining economic activity for four years. We’re only six weeks in. So will we have a depression or not is all about duration.
But in terms of magnitude of decline, this is in the scale of the decline observed in the depths of the Great Depression. The scale of this pandemic recession? It’s just unprecedented in terms of its magnitude and at the speed at which it changed.
EDUARDO PORTER: We are definitely in a recession, right?
ERIK HURST: Oh, without a doubt. Usually, there’s a group of researchers at the National Bureau of Economic Research who kind of get together and decree when recessions occur. But by all metrics, we are definitely in a recession. The question now is will we move towards depression, not will we stay in a recession.
EDUARDO PORTER: Are there any other salient differences with other recessions or even the Great Depression? Is this different in the structure and where it’s falling and where it’s hurting most?
ERIK HURST: The scale at which it’s hitting the lower end of the income distribution is massive because our data allows us to follow workers over time and see who’s losing their jobs. Think about it at the bottom end of the wage distribution, the bottom 20% of the wage distribution. About 35% of them have lost their job since early March. 35%– that is massive. And if you look at the top of the distribution, it’s still massive. It’s about 9%.
Now, when you tell somebody 9% job loss, that’s worse than the Great Recession. We only lost 7% of jobs in the Great Recession. 9% versus 36%– that is a staggering effect. So this is really hitting the low end of the wage distribution much worse than the higher end of the wage distribution.
EDUARDO PORTER: I wonder, is there a gender gap in what you’re looking at?
ERIK HURST: So far, there is some gender gap. And this is different than other recessions. Usually in recessions, job losses for men tend to be larger than women. And it just so happens that the most cyclical sectors tend to be things like manufacturing and construction, where men have a higher propensity to work in those sectors than women.
But in this recession, we’re actually seeing the employment losses for women were higher than men. And some of that is due to the sectors that are being hit this time– the leisure and hospitality sectors, far more than other sectors. And those disproportionately employ women relative to men. So some of that is just going to be an industry composition of this recession relative to other recessions.
EDUARDO PORTER: You know, I’ve been looking at how many ways I can just be flummoxed by this data. And you know what? We just lost 10 years’ worth of employment growth.
ERIK HURST: And when you put that even in a population detrended sense, it’s even more because population has been growing during this period. I think we are going to see some historic gains over the next five to six months, but still put us at a level where we’ve had more losses than we did in the Great Recession. So we’re still going to be in a severe recession six to 12 months from now.
EDUARDO PORTER: Now, another thing that you found was about how much of the job loss has to do with businesses basically going out of business. They’re just not firing workers. They’re just folding.
ERIK HURST: Roughly 20% of job loss is occurring at firms that are no longer showing up in the data. It is much more likely that you’re paying no workers if you’re a small firm in the economy. Big firms don’t seem to have shuttered. But the small firms, a lot of their job loss, which was somewhere 26% to 27% employment loss among firms with less than 100 employees, most of that is in firms that have shuttered, at least temporarily.
The big declines in businesses themselves is going to determine whether this economy recovers quickly from this shock, or whether it’s going to be long-lasting. If businesses are going away, and workers are permanently displaced, in order for things to get going again, when they eventually get going, you’ll have to form businesses and hire new workers, which takes time. And so the more we can preserve the businesses that are existing, the speedier the recovery will be.
EDUARDO PORTER: It’s not like just the restaurants that are closing down or the hotels that are closing down. You find jobs lost in health care.
ERIK HURST: In the industry. We’ll call it the leisure and hospitality industries– the restaurants, the hotels, the movie theaters. They’ve been massively hit. They’ve lost about 50% of employment. Just think about that. But even in industries like health care, they’ve shrunk by about 13% in their employment.
Now, you’re saying, how does that happen? Well, the answer is the hospitals have focused so much of their attention on emergency care, the other types of procedures, such as knee replacements, vasectomies, tonsillectomies– none of those are happening. And as a result, hospitals have workers who specialize in those tasks have no work to be done. And so they’ve laid off those workers. Have you gone to your dentist in the last six weeks?
EDUARDO PORTER: No. In fact, I was thinking about that because I did have an appointment. And I just obviously canceled it.
ERIK HURST: Exactly. I had an eye doctor appointment. I canceled as well. So now, you think about the dentists and the optometrists who are part of the health care sector. They are suffering mightily as well.
EDUARDO PORTER: Do you have any geographical data? Is there an interesting map that shows us some kind of difference across regions?
ERIK HURST: There is. The places with the largest employment losses of the big states, the states with the biggest populations, if I listed them off, we could see what they might have in common. Michigan, New York, New Jersey, Massachusetts. And in places like that, they have lost roughly a quarter of their workforce in the last six to eight weeks. A quarter.
EDUARDO PORTER: And these are some of the places where the virus has hit hardest. That makes sense. I mean, we’re seeing the biggest job losses in the biggest, most packed cities. It’s hard to be optimistic looking at this data, right? I mean, how do we think about what recovery is going to look like?
ERIK HURST: I think when states start to reopen, we might see an increase in employment. And some of these workers go back to work. Again, we’ve lost so far 22%. I assume once things stabilize, it might be 25% of the workforce. Suppose 15% of those workers get re-employed by August. That’s a massive amount. The same thing would be the biggest increase in the labor market we’ve seen in modern history.
But if 15% of them get employed, and we’ve lost 25%, we’re still down 10%, which is still orders of magnitude worse than the Great Recession, where we only lost 6.5% of workers. So the scale of this, just undoing it, even if we had a massive recovery, with the amount of unemployment we’ve declined, it’s just mind-boggling to see how we would be able to absorb that quickly. It’s just going to take time, just like we did out of the Great Recession.
It’s just going to take time for businesses to grow. And I imagine, in a couple of years, we’re going to be right back to where we were. Now, that couple of years might be 18 months. It might be 2 and 1/2 years. We don’t have a crystal ball until we know more about how long the public health situation remains.
TESS VIGELAND: Well, Eduardo, I have to say, Erik Hurst doesn’t make me feel much better about any of the situation that we’re in right now. But he’s saying that the key is whether we’re able to somehow get to a quick recovery.
EDUARDO PORTER: Yeah. Erik Hurst has, to my mind, a bit of an optimistic take on this, that we will quickly recover, say, a large share of the jobs that we’ve lost because many businesses will just switch back on once we’ve learned how to deal with the health crisis. But something that I think is missing– you can start going back to work, but schools are still closed, and daycares are still closed. I don’t know that you can go back to work. And Joe Vavra has some very interesting thoughts about that to share with us.
TESS VIGELAND: Yeah, he does. And he also has a lot of numbers that show that essentially, if you’ve got kids, you’ve got a big problem going back to work right now. And we’ll hear more about that coming up.
EDUARDO PORTER: There’s more Pandemic Economics, so hang tight.
TESS VIGELAND: I spoke with Joe Vavra about his research on the childcare obligations facing 50 million Americans. There are so many unknowns surrounding the question of when people are going to be able or allowed to go back to work amidst this crisis. And what element we haven’t heard much about, but certainly every parent would be confronting, is childcare.
Schools are closed. Daycares are closed. Summer camps may remain shut down. So first, from your research, can you give us a sense of how many people, what share of the workforce, is currently dealing with this question of what to do with the kids if and when they’re allowed to return to their jobs?
JOE VAVRA: Yeah, it’s a sizable number. Using data from the census, the simplest statistic, if you want, would be basically just looking at the share of everybody in the workforce who has a child who’s likely to need childcare needs. So, focusing on the share of all workers with children under 14.
That’s roughly a third of the total labor force, so just over 30%. With schools and daycares, if they’re all closed, and these people need childcare, that’s the share of the workforce that’s going to face some childcare burden in this period of time when schools are closed.
TESS VIGELAND: So how many Americans is that? In other words, how many workers are currently facing this dilemma?
JOE VAVRA: I think it’s on the order of 50 million workers, because the overall labor force is around 150 million people working, so you’re talking about a third of that facing some form of childcare obligations.
TESS VIGELAND: That’s a lot of people having to really figure out how they’re going to fix what seems like an intractable problem.
JOE VAVRA: It is a lot of people. So that’s sort of the simplest number. That overstates a little bit, probably, the scope of the challenge to people going back to work while schools are closed in some sense in that we know there are a lot of households out there that have, for example, one working spouse and one non-working spouse. And in these types of households, it’s not going to be as much of a burden for going back to work, dealing with childcare obligations.
TESS VIGELAND: Also, if there’s a grandparent around or some other caregiver, I assume. Do we have numbers on that?
JOE VAVRA: Yeah. So we tried to calculate various other [INAUDIBLE] of the data. So if you basically include any other adult in the household who could potentially go back to work, then you’re talking about around 20% of the workforce has a child and doesn’t have any other available caregiver in the household, where the way we’re thinking about an available caregiver there would be any other non-working adult. So that brings the number down a little bit. But 20% of the workforce is still something like 35 or 40 million households.
TESS VIGELAND: Yeah.
[CHILD CRYING OUT]
Speaking of which, it sounds, perhaps, like you are a caregiver at this moment.
JOE VAVRA: I am, yeah. So I’m doing a fair amount of child care at the moment, since schools are obviously closed everywhere.
TESS VIGELAND: You have two kids?
JOE VAVRA: Yeah, six-year-old twins.
TESS VIGELAND: So we were talking about the families that do have a potential caregiver, but that still leaves a lot of people.
JOE VAVRA: Yeah, that still leaves about 21% of the workforce. So you could probably think of that number as like a headline number for what share of households are going to struggle with going back to work in some form or another in a situation where schools and daycares and child care options remain closed.
Now, that doesn’t mean it’s impossible for these households to arrange some way of at least partially going back to work because any household with two working adults and a child, we would say that household doesn’t have anybody available to do childcare under that 21% number that I just came up with. What you could imagine is that one of those adults goes back to work, and the other one, even though they’d like to go back to work, they stay home at the moment because schools aren’t open, and they have to engage in childcare obligations.
So at that last cut of the data that we did, which I think is the set of workers who are going to be the most constrained, is basically, if you look at the share of workers who have no other adult in the household either working or not working– so basically, just no other obvious person who could take over childcare duties– that number gets you to around a little over 10% of the workforce, or about 15 million people that are going to basically have no particularly clear path to going back to work in a situation where there aren’t childcare options. Because they have some kid who’s under 14, and they don’t have anyone else in the household.
TESS VIGELAND: There are so many issues now that show us this picture of this wide divide over the burdens placed on families by COVID-19. But, is childcare part of the picture of inequality in the consequences specifically of this virus?
JOE VAVRA: Yes and no. So I think it’s important to remember– I mean, having children is a fairly universal situation. But I think there is a very substantial element of inequality on two dimensions to be thinking about. There’s a large dimension of inequality on the front of once you face this childcare burden and these challenges to going back to work, how well able are you to deal with these things?
If you’re a poor, single-parent household with very little savings, and you have children at home, and you’re not able to go back to work, that’s a fairly devastating situation. Whereas if you’re in roughly the same boat in terms of being a single parent, but you’re in a job that lets you work remotely and money sitting in your checking account, it’s an inconvenience. And it’s a burden for you not having schools reopen, for sure. But you’re not in any danger of starving or probably losing your house or any of the most devastating economic consequences that people might be facing.
And I think there’s another element of inequality that it’s important to be thinking about, which historically, women take on more of the childcare obligations and spend more of their time dealing with children. So it’s quite likely that there will be gender redistribution aspects to this pandemic as well. And you’ll most likely see some of the burden or a substantial fraction of the burden for these childcare obligations basically being shifted onto women and not onto men.
EDUARDO PORTER: Tess, one thing that jumps up at me is that both of these researchers, Joe Vavra and Erik Hurst, they both find that the economic disruption is going to have a bigger impact on women.
TESS VIGELAND: Yeah. And I think that certainly fits with what we’ve found in previous episodes in terms of this crisis having an impact on different populations, whether it’s racial or gender effects of this, have not been equal really at all.
EDUARDO PORTER: Yeah.
TESS VIGELAND: One of the questions right now, of course, is that states are grappling with what parts of their economies to reopen. What’s safe? And next week, we’re going to dive in to some new research that uses cell phone data to show which businesses are so-called “super spreaders,” where you are potentially more at risk of contracting the virus.
SPEAKER: Think about a sit-down restaurant where people stay for a long, leisurely dinner, versus a fast food restaurant, where people might zip in and out. You might at first think that the fast food restaurant was risky because of how many different people come in and out during the day. But if the establishment is big enough, and people are coming in and out for short enough periods of time, they’re less likely to see each other and may be less likely to spread disease.
EDUARDO PORTER: Pandemic Economics is produced by the University of Chicago’s Becker Friedman Institute. Our producers are Dana Bialek, Kaitlyn Nicholas, and Devin Robins. Our executive producer is Ellen Horne. Production and original music by Story Mechanics.
TESS VIGELAND: Pandemic Economics is part of the University of Chicago Podcast Network.
EDUARDO PORTER: I’m Eduardo Porter.
TESS VIGELAND: And I’m Tess Vigeland. Thanks for joining us.