California’s Unemployment Problem

We’re in the second month of what looks to be a prolonged recession.  In this article I’ll examine how this savage economic downturn has impacted California and what will likely happen.  While the situation in California will be somewhat different from that in  your state, it is informative to consider the largest state and it should be relatively straightforward to extrapolate to your situation.

The United States has a population of 331 million and a labor force of 165 million.  The April 30th report indicated that there are 33 million unemployed (20 percent).  (On March 23, St. Louis Federal Reserve president James Bullard warned the U.S. unemployment rate could hit 30 percent in the second quarter.)

California has 40 million residents and a labor force of approximately 18 million. Between March 15 and April 18, 3.4 million Californians applied for unemployment insurance (19 percent).  According to the Public Policy Institute of California (https://www.ppic.org/blog/early-insights-on-californias-economic-downturn/?),  “The lion’s share of job loss (more than 80%) occurred in three service sectors: arts, entertainment, and recreation; accommodation and food; and ‘other services’ (a category that includes automotive repair, personal care, and dry cleaning).”  These sectors fell significantly faster than they did during the first month of the great recession — December 2007 through January 2008.  (In contrast, during the great recession, the sector experiencing the most impact was construction.)

In Sonoma County, where I live, the biggest impact has been on the “accommodation and food” sector, which has, for the most part, shut down.   (Accommodation and food is the largest industrial sector in the county; it includes hotels, motels, vacation rentals, restaurants, wine tasting rooms and brewpubs.)  Outdoor recreation has also cratered.  As a result, the unemployment rate in Sonoma County is also about 20% and will likely increase.  In my small community, we all know someone whose business has shut down or whose friend or relative has lost their job.  Looking at the Bay Area, in general, we all know someone who was working a couple of jobs, in order to make ends meet — participants in the “gig” economy.  Typically, one of those jobs is now gone — such as driving for Uber.  For those who rented out a room or “granny unit” via Airbnb, this source of income has also dried up.

The question is what to do about this job loss.  California, and Sonoma County, are in the process of slowly opening up — easing shelter-in-place restrictions in a manner that does not cause our coronavirus cases to spike.  In Sonoma County it appears the job sectors that will first reopen are residential construction and related services such as landscaping and gardening.

Sonoma County has 500,000 residents and a workforce of 211,000.  One-third of our workers are in the arts, entertainment, and recreation; accommodation and food; and ‘other services’ sectors that are predicted to bear the brunt of the COVID-19 crisis.  May 1st is the beginning of what, historically, has been a vibrant tourist season throughout the county.  Because of the pandemic, it’s not going to happen.  This is going to impact wine tasting, river rafting, music festivals, camping on the coast… all the activities that have historically been associated with a visit to “wine country.”

California has “flattened the curve” but has yet to relax most of the “shelter-in-place” rules.  In the San Francisco Bay Area, shelter-in-place will last at least until the end of May.  But on a county-by-county basis there is some relaxation of the definition of “essential” businesses; that is, those business — such as markets and pharmacies — that are deemed to be essential to public health and safety.

It’s unclear how long it will take to reopen the hardest hit sectors: arts, entertainment, and recreation; accommodation and food; and other services.  In Sonoma County, there’s no indication when the “arts, entertainment, and recreation” sector will reemerge — this summer there’s not going to be any music festivals and access to our beaches and rivers is likely to be severely restricted. “Accommodation and food” is similarly challenged — some restaurants are surviving on a “take-out” basis but others have chosen to stay shuttered or go out of business; many motels are closed  but a few have opened as temporary refuges for the homeless.  “Other services” is a big category that includes automotive repair, personal care, and dry cleaning; automotive repair is a permitted activity, as is dry cleaning; on the other hand, “personal care” services — barbers, beauticians, fitness trainers, etcetera — are moribund.

California’s Governor Newsom has proposed a program where the state would pay restaurants to prepare and deliver meals to shut-in seniors.  This will provide employment for some dormant workers.  There’s also talk of hiring folks — with little experience — to do the leg-work required for COVID-19 contact tracing.  In Sonoma County that will provide a few thousand jobs.

By June, Sonoma County is likely to have 50,000 unemployed workers, who have little hope of returning to their jobs until at least 2021.  Their lives will not return to “normal” until shelter-in-place is lifted and that won’t happen until there’s a COVID-19 vaccine (or the equivalent).

We’re entering a depression.  To help these workers, we need a massive Federal/State program on the scale of those seen during the Great Depression — the Works Progress Administration.