Via Financial Times

The US faces a tsunami of jobless claims as states from Ohio to Pennsylvania see a surge in the number of people who have been laid off in recent days, overwhelming state labour agencies as cities shut down to halt the spread of the coronavirus.

A report by the US labour department on Thursday showed a steep rise in claims for unemployment insurance: 281,000 for the week that ended March 14, up from 211,000 the previous week.

More recent numbers, confirmed by individual states, are even more dramatic.

In the first three days of this week, just under 78,000 people in Ohio filed unemployment insurance claims, compared with 5,400 people for the entire previous week, according to Ohio’s labour department. The situation was just as stark in Pennsylvania, where 121,000 people filed claims from Monday to Wednesday, more than 10 times the number who had filed in the whole of last week, according to the state’s labour officials.

“In the 12 years I’ve been an elected official, I’ve never been more inundated than the last three days,” said Brendan Boyle, a Democratic congressman from Philadelphia. “It’s people from all walks of life too.”

Mr Boyle said Philadelphia’s stagehands labour union had gone from 100 per cent employment two weeks ago to 2 per cent.

The perilous rise in numbers of claimants in the rust-belt states came one day after Steven Mnuchin, Treasury secretary, told Congress that the US jobless rate could soar to 20 per cent. President Donald Trump on Wednesday played down the warning. 

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“I don’t agree with that [figure of 20 per cent], he said at a White House press briefing. “That is an absolute total worst-case scenario.”

As the number of people who have lost their jobs spirals upwards, unemployment insurance claims have overwhelmed the state agencies that administer the programmes, due to reductions in staffing levels over the past few years. 

The numbers that have emerged from some states are far more dramatic than even the claims made at the height of the global financial crisis, when national unemployment rose to 10 per cent. No week during the 2008-09 recession came even close to producing comparable numbers. Pennsylvania’s previous worst full week came in the post-holiday lull of January 2010, when there were 61,000 claims. 

“There’s no world where all 50 states will be able to handle the influx,” said Peter Ganong, a labour economist at the University of Chicago. “One way to think about the question is: Are there states that are able to handle the influx?”

Strains at state employment offices are already clear, underlining how difficult it will be for any local or national government to get cheques to citizens as quickly as they will need the cash.

For many states, employment offices are already closed to the public to maintain social distancing, sending all applicants online. According to a spokesperson in Ohio, claims sites crashed in Kentucky, Oregon and New York. Once the sites are fixed, however, applications will still need to be approved by a human who will need to apply revised criteria to assess the applicants following Congress’s appropriations bill approved on Wednesday. 

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Mr Ganong, who was an economic adviser at the White House during the recession, pointed out that all states require that anyone getting an unemployment cheque be out looking for work. This requirement had traditionally been met through, perhaps, a weekly phone call. But many states have been demanding extensive documentation of job searches, a requirement that has saved money by pushing people off unemployment rolls. 

States have also been able to save money by reducing the number of weeks that someone can collect unemployment, particularly after the 2010 election put Republicans in state houses around the country. And some states have tightened the definition of what kind of job loss might trigger an unemployment claim. 

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However, the appropriations bill, which includes $1bn for administrative costs to process unemployment claims, requires states to ease eligibility, waive job search requirements and get rid of the one-week waiting period before sending the first cheque.

Over the past decade, as states cut their recipiency rates, a measure of how many people who lose their jobs actually qualify for benefits, they also cut staff in their unemployment offices, said Michele Evermore, a researcher at the National Employment Law project. And until about a week ago, US unemployment was at historic lows, which meant that claims staff were already at a minimum. 

This means that even as Ohio’s Department of Job and Family services shifts employees from other agencies to handle the volume, no state is anywhere near staffed for what will probably be at least a 10-fold, one-week increase. 

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“The system isn’t really designed for an onslaught like this,” said Ms Evermore.