The pandemic and spending for the recently conducted elections in the United States have cost economic problems more far-reaching than anybody can think of. One of the things that the government and responsible groups must be concerned about is the significant unemployment cost, according to what has been detailed in a New York Times article.
According to the Center on Budget and Policy Priorities, the U.S. had been enjoying its longest economic expansion in history when COVID-19 struck. Aside from businesses closing, quarantine measures, and reduced demand for products and services, the unemployment rate drastically increased. This seemingly has burdened the U.S. labor market and the economy as a whole.
The government cannot just leave this all behind. They know the expenditures to mitigate unemployment, including giving aid to those unemployed, will cost the economy a lot, but they have to implement policies and fiscal stimulus to help those who lost their jobs.
Many changes have already happened, nevertheless, in the last three months with employers adding almost three million jobs, and seeing a 15 percent decrease in the unemployment rate in April, generally falling by more than half. But the problems persist.
It has been argued in one Pew Research Center report that the rise in unemployment during the COVID-19 pandemic is greater than the two years in the Great Recession, which was from December 2007 to June 2009. The consequences are still present. The federal government retaliated for its aid before economic recovery, affecting Black and Hispanic households more than the rest of the population.
U.S. unemployment rate from 2020 to 2021 is at a decreasing line, also since the lockdown is predicted to loosen up in the following year, prompting more employees to return to their offices. However, the 2021 unemployment rates seem to have little change from the 2020 rates, and the percentage is still high, even when compared with the unemployment rate in January 2020.
From December 2020 to January 2021, the unemployment rate is at 7.5 percent to 5.5 percent. Yet, comparing the January 2020 and January 2021 figures, the rate is higher in 2021. The unemployment rate in the U.S. in January 2020 was at 3.6 percent, while the predicted rate for January 2021 is at 5.5 percent. The figures will move further into the year with roughly similar rates at 4 to 5 percent.
The study utilized the flow-based approach, a method that does not produce absolute projections, and the future state of unemployment rate is predicted, or the baseline scenario. is projected. In the second half of the year, economic activity is predicted to recover, leading to an improvement in unemployment rates, as it unwinds by October 2021.
With the unemployment rates and percentages, the number of unemployed workers follows through. The COVID-19 has produced millions of unemployed individuals. As the world welcomes the 2021 New Year, there will be little change in the figures.
In the first quarter of 2021, the number of unemployed workers is from 8 to 9 million individuals. It will remain at 8 million in the second quarter, only decreasing a few notches in the third and fourth quarter. From December 2020 to December 2021, the number of unemployed individuals is from approximately 12 million to an estimated 8 million.
The costs of unemployment are more than just the price of giving out financial benefits. It goes down to costs upon the individual, the society, and the country. Unemployment leads to the erosion of skills, costing the economy with talents that are put to waste. It also harms the psychological health of these workers.
Costs to society include less volunteerism in the community and higher chances of crime. For the country, the costs are upon unemployment benefits, food assistance, and health care that are the responsibilities of the government. Interpreting these in figures, it will reach billions of U.S. dollars. In 2021, projected unemployment costs are from $9 to $11 billion.
It is interesting to note the huge difference in the U.S. unemployment rate in 2020 and 2021. With the help of the flows projection, the figures in the upcoming year are now seen. Unemployment rates from January to March of 2021 will be at a higher range than similar months in 2020, and this is due to the adjustment phase since COVID-19 started.
However, starting March to April 2021 and onwards, unemployment rates are lower compared with those in 2020. Since worldwide lockdowns were implemented around March to April of 2020, advising individuals to stay and work from home, the unemployment rate dramatically increased from 4.4 percent in March 2020 all the way up to 14.7 percent in April 2020.
We used data in the study titled The Unemployment Cost of COVID-19: How High and How Long? by Ayşegül Şahin, Murat Tasci, and Jin Yan published on the Federal Reserve Bank of Cleveland.
With previous data and statistics, the study used flows into and out of unemployment to project the 2021 unemployment rate. The study referred to the unemployment inflow probability as S and the unemployment outflow rate as F. S signifies job loss or the individual’s entry from the labor force into unemployment, while F signifies job search or leaving the labor force.
This equation that relates underlying flow rates to the unemployment rate includes Ft and St to accurately determine the unemployment rate. With this formula, we can calculate the cost of unemployment and unemployed workers based on information from the U.S. Bureau of Labor Statistics.
We used the result of this study, which is, the unemployment rate to calculate the unemployment cost and the number of unemployed workers presented in the earlier paragraphs. We added resources for the prediction, including the 168.7 million labor force from the Congressional Budget Office background paper, as well as the Lost Wages Assistance program calculations.
There are limitations to the study and its results. With a baseline scenario or projecting the unemployment rate in the future, that is, 2021, it is assumed that the U.S. ends lockdown in June 2020, and unemployed workers still receive $300 unemployment benefits weekly in the Lost Wages Assistance program.
It is important to remember that the estimate likewise depends on assumptions that the shock to GDP growth is temporary and that things will gradually normalize, consistent with typical recessions. However, if there will be permanent dislocations, business bankruptcies, or the failure of a public health emergency to get enacted soon, the findings may change.
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