By Eric Morath
The vast majority of people laid off this spring assumed they'd
be back at their jobs fairly soon. It is becoming more clear now
that for many, that was wishful thinking.
Even as states encourage a return to pre-Covid-19s normalcy,
restaurants, factories and other businesses are increasingly saying
they either won't open when allowed, or will do so with reduced
staff. Federal Reserve Chairman Jerome Powell has warned that the
U.S. economy could take more than a year to recover.
The closures were sudden and swift. In February, the
unemployment rate was at a 50-year low at 3.5%, and many employers
worried about being able to attract workers. Weeks later, the
largest mass layoffs since the Depression were under way.
A signature feature of this crisis was its blizzard of
confusion. States and employers, faced with the uncertainties of a
new disease, took placeholder measures they hoped would be
temporary. Government programs aimed to encourage employers to keep
workers on their payrolls. Now, some forecasts estimate that of the
more than 21 million workers laid off in March and April, only
about half might be able to return to their old jobs.
The psychological shift to the new landscape has taken some time
to sink in.
Lockdowns were first billed as short-lived. Even when they were
extended, many companies preferred to furlough workers rather than
cut ties permanently. Laid-off workers don't normally feel very
upbeat that they'll get their jobs back. But of those unemployed
due to job loss in April, 88% called their absences temporary,
according to the Labor Department, meaning they anticipated
returning to the same job within six months.
April's reading, the most optimistic since records started in
1967, suggests many left their jobs with a promise they'd be
back.
Since then, several national retailers have filed for bankruptcy
protection. J.C. Penney Co., which closed its stores on a temporary
basis in March, said Monday it will permanently close 240
locations, or nearly 30% of stores. Pier 1 Imports Inc. reversed a
plan to reopen some stores by June 1, instead closing stores for
good. Goodyear Tire & Rubber Co. recently said it would close
an Alabama plant after temporarily suspending operations there and
at other U.S. factories in March.
Permanent layoffs are likely at more factories, as consumer
spending declines. Airlines have warned employees on paid leave
that they could be cut this fall as forecasts suggest full recovery
of robust travel might take years. And in communities across the
country, restaurants and other small businesses are closing up shop
for good.
Kimberly Smith was furloughed from her job as a server and
supervisor at the Hard Rock Café in Boston in March, around the
time that Massachusetts ordered nonessential businesses to close.
Then, in late April, she received a notice in the mail that she had
been permanently laid off. "To get that letter was just
devastating," says Ms. Smith, 47 years old.
She tried driving for Lyft part-time, but so few customers
wanted rides that she stopped. Diagnosed with breast cancer in
February, she also didn't want to take chances with her health. She
has health insurance through the state, and hopes that her
seniority may help her chances if the restaurant calls workers back
once operations resume. Hard Rock declined to comment.
Mikel Blair's business vanished in two hours. On March 7, a
Saturday, she had 25 birthday parties scheduled for the weekend at
her indoor playground, Badlands in Rockville, Md. Two parties went
as planned. But during the second, at about 10:30 a.m., she
realized parents were talking about how this was likely their last
social outing for a while. Other families were calling to ask if
their parties would be canceled.
"It didn't feel like it was safe to be open," she said. She
started calling other customers to cancel bookings. "By noon on
Saturday, we were closed."
She furloughed some employees but managed to keep some on to
help sell milk, eggs and the company's stock of beverages in the
playground's parking lot. After reviewing Maryland Gov. Larry
Hogan's May 11 "Roadmap to Recovery," with safety guidelines for
the near term, she determined that she won't be able to reopen
until 2021.
Her entire business model is incompatible with current
social-distancing guidelines. "You can't disinfect a slide every
time someone goes down it, " she said. "You can't expect kids to
play with masks on."
She has laid off 55 full- and part-time employees
indefinitely.
Gregory Daco, chief U.S. economist at Oxford Economics a
U.K.-based forecasting and consulting firm, forecast that about
half of workers laid off or furloughed in March and April, or at
least 10 million people, won't be returning to their old jobs, or
roughly the same number that permanently lost jobs in the 2007-09
downturn. His forecast considers that in recessions since World War
II, most layoffs have been permanent, and that several large
employers have signaled that recent temporary layoffs are becoming
permanent.
He expects job losses due to the pandemic shutdowns will total
30 million.
In 2007, the recession built gradually over months and years.
Furloughs were a lot less common. The crisis caused by the pandemic
is different. The equivalent number of jobs created in the last
decade--about 20 million--were lost in a single month.
University of Chicago economist Erik Hurst noted that employment
has fallen by 22% in recent months. In no recession since World War
II did employment fall by more than 2% in the first three months of
a downturn.
In economics, the term hysteresis describes when a temporary
loss becomes permanent even after the shock that caused the loss in
the first place has disappeared.
That doesn't mean tens of million of Americans will be forever
jobless. Many will find positions elsewhere, perhaps moving from
stores and restaurants to online retailers' warehouses and delivery
services.
The virus-induced shock has created its own job opportunities,
leading to about three new hires for every 10 layoffs, according to
Federal Reserve Bank of Atlanta researchers. Walmart Inc. said
Tuesday it hired 235,000 new hourly workers to help it meet
increased demand. Amazon.com Inc. and CVS Health Corp. have also
announced hiring plans.
But for many workers, the transition will take time. "It will be
years before we recover all the jobs lost," Mr. Daco said.
The jobless rate, which was 14.7% in April, is expected to
remain well above anything seen since records started after World
War II through this year, according to a May 8-12 Wall Street
Journal survey of 64 economists, which forecast the rate will be
11.4% in December. The nonpartisan Congressional Budget Office sees
unemployment peaking at 15.8% this summer and ending 2021 at
8.6%.
The April shelter-in-place orders caused especially great
devastation in the hospitality and retail sectors, which together
accounted for nearly half of all jobs lost.
Employers operating restaurants brands like Cheesecake Factory
and Outback Steakhouse and retailers like Ross Stores Inc. have
told states about plans to reduce hours or furlough thousands of
workers in recent weeks. All say they plan to bring back
employees.
Employers filing mass-layoff notices with states ranged from
nonprofits like Goodwill and YMCA family centers to oil-field
service giant Halliburton and United States Steel Corp.
The ripple effects of 10 million or more jobs permanently lost
rule out any hope of a quick economic bounceback. People who aren't
reporting to work don't pay for child care or gas, skip eating out
or making big-ticket purchases, such as a new car. And many won't
go on vacation even when travel is allowed again.
Restaurants' prognosis is especially dire. As a rule, they have
small margins and fail at rapid rates even in economic booms.
Seating half as many diners as before -- as required in some
reopening scenarios -- just isn't a viable option for many. And
even if all restrictions lift, how comfortable people will feel in
a crowded restaurant is an open question.
"There are a lot of people whose jobs depend on more than five
people being in the same room at the same time," said Martha
Gimbel, manager of economic research at Schmidt Futures.
Most states are taking some steps to reopen, and workers are
being recalled. Auto factories in Michigan reopened over the past
week. Gyms are cleared to operate in Georgia and Tennessee. Texas
and other states are allowing movie theaters to open, with limited
capacity. But those rehires won't come close to offsetting the
millions of jobs lost in May.
And the broad belief of returning to the same job that the Labor
Department documented this spring reflects false hope, said Ms.
Gimbel. "A lot of these temporary layoffs occurred at businesses
that are now gone."
A separate April 26-May 2 survey overseen by economists
Alexander Bick, of Arizona State University, and Adam Blandin, of
Virginia Commonwealth University, gives a greater sense of
apprehension among those dismissed from their jobs. In that survey,
intended to give an early glimpse of the state of the job market
ahead of the Labor Department's job report each month, more than
35% of those temporarily laid off said they either don't expect to
return to their old jobs or are unsure whether they will. Among
those who called their layoffs permanent, half expressed
uncertainty or no expectation they'd be rehired.
In California, which requires companies to declare if mass
layoffs are temporary or permanent, temporary ones accounted for
about 90% of announced layoffs in late April. By the week ended
Monday, the share had shrunk somewhat to 78%.
Jordan Shain, 38, expected to be out for a month or two when he
was furloughed from his job inspecting titanium parts used in jet
engines at Whitcraft Group in Scarborough, Maine. Then on April 29
he learned that he and about 130 machinists, engineers and others
would lose their jobs permanently.
"This is just a shock," said Mr. Shain. He worked at the plant
for eight years and felt secure at a business he thought was doing
well.
Whitcraft's Chief Executive Doug Folsom said the plant in
Scarborough was one of the company's best performing. In March, as
the pandemic spread, the company estimated a drop of between 30%
and 50% for engine components from the plant and put employees on
rotating furloughs. A few weeks later, he learned a customer
wouldn't buy any components through the rest of the year from the
Scarborough plant and that demand would be low in 2021.
He said the company, which makes other precision components for
the aerospace and power generation industries, might have shifted
another product to Scarborough if it had had more time. But the
business was burning through cash too quickly and shutting the
operation was the right move for remaining employees and
shareholders, he said. The South Windsor, Conn., company will close
another plant in Arizona, eliminating 40 more jobs. It laid off 20%
of its remaining workforce, or about 230 people, at its nine other
locations.
"I feel horrible for the very talented employees that are
affected by this," Mr. Folsom said. "I get the feeling we're on the
front end of this thing."
Mr. Shain, who earned $23.81 an hour, said he is now looking for
work, including at delivery companies, while trying to get health
insurance for himself, his wife and two children and keep up with
car payments, a student loan and other expenses.
Vaughan Hospitality Group, which operates seven Irish pubs in
Chicago, was preparing to open its seasonal Riverwalk location in
time for St. Patrick's Day. Instead it had to close all its bars
and lay off 160 workers.
"I thought we'd be closed for two weeks," said owner Kristan
Vaughan. Now she doesn't plan to reopen until July, but said, "I
can't bring everyone back." At least one of the pubs will stay
closed because it's too small to operate profitably at the 25%
capacity level state officials have proposed.
Before the pandemic, Austin Sweet, 28, patched together 60 or 70
hours of work every week as an audio engineer, juggling part-time
and freelance gigs in the Dallas-Fort Worth area. But in late
winter, the work began drying up as concerts and conventions were
canceled.
One of Mr. Sweet's employers, a small firm that supplied audio
equipment and engineers for corporate events, laid off staff in
early March. Two weeks later, he was told the layoff would be
permanent.
"My industry doesn't exist right now," he said.
--Lauren Weber and Kris Maher contributed to this article.
Write to Eric Morath at eric.morath@wsj.com
(END) Dow Jones Newswires
May 23, 2020 00:14 ET (04:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.