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The Coronavirus shutdown is a crisis for low paid workers

The national picture

Today, the Bureau of Labor Statistics released its jobs report for April. The big, unexpected news, was that total nonfarm payroll employment fell by 20.5 million in April, and the unemployment rate rose to 14.7%. This was up from 4.4% in March and 3.5% in February. It is the highest unemployment rate since at least 1948, as Figure 1 shows, and is comfortably ahead of the previous peak of 10.8% in November-December 1982 and the peak reached during the Great Recession of 10.0% in October 2009.

Figure 1: Unemployment Rate, %

Source: Federal Reserve Bank of St. Louis

The true situation might be even worse than that. Sspeaking on NBC’s Today show, Minneapolis Fed president Neel Kashkari explained that these numbers don’t include people who have been recently laid off and haven’t begun looking for new work yet. “I think the real number’s probably around 23% or 24%,” he said. “It’s devastating.”

The story in Minnesota

Data for Minnesota does not come out until May 22nd but there is no reason to believe that Minnesota has been spared this ravaging of the labor market. Indeed, we may be doing worse than average.

According to Minnesota’s Department of Employment and Economic Development (DEED), 633,405 people have filed for unemployment insurance since Gov. Walz filed issued his stay-at-home order (SHO) on March 16th. The Tax Foundation calculates that the number of unemployment insurance claims comes to 15.5% of Minnesota’s labor force as of May 2nd. As Figure 2 shows, this is higher than in 30 states and than all four neighboring states.

Figure 2: 

Source: Tax Foundation 

DEED breaks these numbers down so that we can get an idea of who is being worst hit by this.

Poorer counties are bearing the brunt

As Figure 3 shows, Cook County has bee the worst hit with unemployment insurance applications since March 16th equal to 31.7% of its 2019 labor force. This will bite deep into the area’s economy. Cook County’s Median Household Income in 2018 (the last for which we have data) was $54,465 which ranked it 58th out of Minnesota’s 87 counties (and Cook County has not recorded a single case of Covid-19 as yet).

Figure 3: 

Source: Department of Employment and Economic Development

This isn’t a one off. Mahnomen County, which, at 30.6%, ranks second worst in terms of recent unemployment insurance applications as a share of its 2019 labor force, ranked dead last out of Minnesota’s 87 counties for Median Household Income, $43,162. Indeed, of the ten worst performing counties for new unemployment claims, their average ranking out of 87 for Median Household Income was 59.*

Lower paid workers are being hit hardest

When we look at the hardest hit occupations, the worst affected has been Food And Beverage Serving Workers, of whom 48,594 have filed for unemployment insurance since March 16th. There, the average annual wage is $29,060. The second worst hit sector, Retail Sales Workers (35,169 unemployment insurance claims since March 16th), has an average annual wage of $30,310.

And, again, these aren’t outliers. Of the ten worst affected sectors, the average average annual wage was $41,914. Of the ten least affected, the average average annual wage was $58,230.** For context, Minnesota’s average annual wage is $55,890.

We need to discuss this sensibly

When your labor market is in as bad a way as America’s currently is, you ought to talk about that. It is quite legitimate to ask what can be done to mitigate this. Indeed, given the effects of unemployment, both on unemployed folks themselves and on society at large, we would be negligent if we didn’t.

*These unemployment numbers are correct as of Wednesday, May 6th, 2020.

**Three of these sectors are military and don’t report earnings. This figure is an averge of the other seven.

John Phelan is an economist at the Center of the American Experiment. 

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