US jobless claims rise amid Covid recession – leading macroeconomic influencers

9 November 2020 (Last Updated November 9th, 2020 07:40)

US jobless claims rise amid Covid recession – leading macroeconomic influencers
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Economist believe that joblessness and unemployment are the not the same thing, and despite US jobs having improved since the Covid-19 outbreak jobless claims seem to have risen above 21.5 million which is more than double the number of unemployed workers reflected in reports.

Jason Schenker

Jason Schenker, an economist, shared his views on how US jobs had improved since the initial outbreak of Covid-19 and the associated recession. However, it was important to understand the scale of improvement, he added. For instance, the latest US jobs report found 11 million people to be unemployed in the US in October, with the actual number being probably higher than reported

He also highlighted the difference between joblessness and unemployment, especially to understand employment data stating that while the US Bureau of Labor Statistics was responsible for unemployment rate statistics, the US Department of Labor handled the joblessness data.

According to data collected from the Prestige Economics and the Futurist Institute, for instance, the latest unadjusted weekly jobless claims found more than 21.5 million people to have claimed for jobless insurance benefits during the week ending October 17. This was double the number of people reported unemployed according to the monthly jobs report.

Antonio Fatas

Antonio Fatas, an economics professor, re-tweeted about how fundamentally misguided economists’ fears were about zombie firms or money-losing firms that have managed to stay afloat either due to abundant profit or Federal Reserve and Treasury support. He believes that weakening businesses are consequence of a weak economy and the cause of one, therefore experts should stop worrying about them draining the economy, leading to slower recovery and productivity. In fact, he believes that policy initiative to kill or shut these firms will dismiss employees and pay off creditors, turning the risk of a recession into a depression.

According to Deutsche Bank Securities, about one in every five publicly traded US companies is a zombie firm, which is has doubled the since 2013. The Post and The Economist summarised the growing size of zombie firms in the US to be a rising concern to stabilise the economy.

A 1990s research on Japan reveals that the existence of zombie firms in an industry makes it difficult for other non-zombie firms to thrive and do better. It is further argued that the gaps in financial regulation and bankruptcy procedures cause creditors and banks to delay foreclosure of nonperforming loans to zombies. This enables them to function if they can continue to pay their employees, implying that better regulation can shut down zombies and allow efficient competitors to grow and thereby boost economic growth.

However, experts believe that the cost of killing zombie firms in an already low operating economy could be high. For instance, killing zombie firms will wipe out the incomes of workers to spend on goods and services. This decline in spending will further cause the GDP to decline more than 100% of what the firms could produce via a Keynesian multiplier effect where the economy does better when the government spends.

Diane Coyle

Diane Coyle, an economist, re-tweeted on the scarring effects of downturns on young workers. Studies spanning Europe, Japan, and North America have further concluded that labour market entry during a downturn can cause earnings to fall for up to 10 years after graduation.

The Australian data collected between 1991-2017 reveals that the Covid-19 shock has reignited the scarring effect of the Great Recession, raising concerns about the future earning capacities of the so called ‘corona class’ and the class of 2010 which was still recuperating from the Great Recession brunt.

Recessions disrupt the worker-firm match quality, leading to scarring effects fading with time when workers move to more productive firms. Experts suggest that a timely stimulus and structural reforms can help reduce the scarring effects of a recession.