COVID-19: Which Workers Face The Highest Unemployment Risk?

from the St Louis Fed

— this post authored by Charles Gascon, Regional Economist

To slow the spread of COVID-19, state and local governments have taken unprecedented steps to require varying degrees of social distancing. The most aggressive steps to date have been shelter-in-place orders requiring residents to remain home and only travel for essential needs, such as groceries or medicine.

The economic consequence of mitigating this public health crisis is that many businesses have closed (at least temporarily) and there are expectations of record layoffs in the coming months.

The purpose of this blog post is to identify the occupatio+ns of the workers facing the highest risk of unemployment, count the number of workers, and estimate the cost of providing unemployment insurance to these workers under two different scenarios.

Determining Whether Occupations Are at High or Low Risk of Unemployment

In order to measure the number of workers facing a high risk of unemployment, I use the Bureau of Labor Statistics Occupational Employment Statistics for 2018. I classify the 808 detailed occupations based on three criteria:

1. First, occupations essential to public health or safety (e.g., police)
2. Second, occupations where work can likely be completed off-site (e.g., computer programmers)
3. Third, positions likely to be salaried (e.g., elementary school teachers)

The table above summarizes total employment and percent of the total for each risk group, along with the subgroupings. Overall, 54% of workers are in occupations that appear to be at “low risk” of unemployment.

The largest subgroup comprises those workers in occupations where work can likely be completed off-site, about 33% of all workers. This share is over twice as high as the 13% estimate, which is calculated based on historical telecommuting rates of 13%.[1] However, the number is plausible, as workers have little choice in their work arrangements.

Of the 46% of workers employed in occupations at “high risk” of a layoff, the largest share is in food preparation or serving-related occupations. This is followed by sales occupations, which in this case are predominately retail salespersons.

The occupations at the highest risk of unemployment also tend to be lower-paid occupations. The average annual earnings of the low-risk occupations are $64,600, about 75% higher than earnings in the high-risk occupations, at $36,600. This indicates the economic burden from this health crisis will most directly affect those workers who are likely in the most vulnerable financial situation.[2]

Fiscal Cost of Providing Unemployment Insurance

In a recent article, St. Louis Fed Economist Bill Dupor suggested increasing unemployment benefit “replacement rates” and expanding unemployment insurance eligibility as a way to offset some of this economic burden while also aligning with the public-health objective of having people stay home. Dupor proposed increasing the replacement rate of income to 70%, and he estimated the program would cost around $61.4 billion if the unemployment rate reached 9% and remained at that level for nine months.

For the unemployment rate to reach 9%, an additional 9 million workers would have to become unemployed, the equivalent of 13% of workers in high-risk occupations. Alternatively, if 50% of workers in high-risk occupations were to be laid off, the unemployment rate would reach 24%.

If unemployment rates remained at these levels for three months, and the replacement rate of income is 70%, I estimate this would cost $57 billion at a 9% unemployment rate and up to $214 billion at a 24% unemployment rate.

If the economic slowdown from the health crisis were longer-lived (for example, nine months as in Dupor’s blog post), the cost of providing unemployment insurance would increase to a range between $173 billion and $642 billion.

Considerations around the Economic Impact

Two considerations in interpreting the economic impact of expanding an unemployment program like this are as follows.

The “moral cushion”

First, a higher income replacement rate provides firms with a “moral cushion” to lay off employees when they may have otherwise found ways to retain workers, not wanting them to experience significant income losses. This effectively shifts the costs from businesses to government and could push the unemployment rate higher than one would otherwise expect.

The health of workers

Second, there are situations in the retail and wholesale sector where firms such as grocery stores are seeking additional workers due to high demand. Work at these firms may involve providing essential goods, like food and prescription drugs, to the public, but this work could come at the cost of the health of these potential workers. Higher unemployment benefits allow these typically lower-wage workers to stay safe at home and care for their children or other family members.

Policymakers must weigh these costs and benefits in determining the optimal reimbursement rate during these very difficult times.

Notes and References

1 Gascon, Charles; and Ebsim, Mahdi. “How Many Employees Are Prepared to Work from Home?” St. Louis Fed On the Economy, March 23, 2020.

2 A similar analysis by Cornell Law School using its Job Quality Index (PDF) finds that about 37 million of production and nonsupervisory jobs are at risk of unemployment. This analysis does not assume widespread long-term layoffs of goods-producing workers; these workers comprise a considerable subset of workers unable to work off-site.

Additional Resources

• On the Economy: How Quickly Does Fiscal Policy Get Implemented?
• On the Economy: Factors That Influence Being Able to Telecommute

Source

https://www.stlouisfed.org/on-the-economy/2020/march/covid-19-workers-highest-unemployment-risk

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.