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Lives and livelihoods: Assessing the near-term impact of COVID-19 on US workers

McKinsey 02 Apr 2020 12:00

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As the United States takes action to contain COVID-19 transmissions and “flatten the curve,” physical distancing measures are the first line of defense—and they have profoundly altered the rhythms of everyday life. Countless neighborhood businesses have been shuttered, trips to the grocery store have to be carefully planned, and many parents are working remotely from home with their kids in the background.

As of March 30, three-quarters of Americans were living under state or local stay-at-home mandates or advisories—and the economic fallout has been swift and dramatic. Discretionary spending has taken a hit, consumer confidence has been shaken, and small businesses are struggling. While there is great uncertainty about the depth and duration of this downturn, recent McKinsey research outlined multiple scenarios that vary depending on the spread of the virus and the public-health response as well as the effectiveness of policy in mitigating economic damage. These factors will determine whether the downturn follows a U-shape with a prolonged trough, or a V-shape with a strong upward rebound. In most scenarios, the depth of the recession appears likely to exceed that of any experienced in the United States since World War II.

American workers are already feeling the pain. Initial unemployment claims for the week ending March 21 soared to 3,307,000, nearly 15 times higher than the 211,000 claims filed just two weeks before and shattering the previous high of 692,000, reached in 1982. Just a week later, the number for the week ending March 28 more than doubled again, to 6,648,000 (Exhibit 1). Our own analysis finds that the first phase of the battle to contain COVID-19 could leave 42 million to 54 million net jobs vulnerable to reductions in hours or pay, temporary furloughs, or permanent layoffs. Many Americans are simply unable to go to work for an uncertain period of time. (However, this is not a forecast of the unemployment rate; see the sidebar for more on methodology.)

Looking beneath the aggregate number, where will the impact be felt? This article builds on the McKinsey Global Institute’s (MGI) 2019 research on the US labor market and aims to identify the people and places most vulnerable to the first-wave effects of the pandemic. Our analysis finds that lockdowns disproportionally affect low-income workers. People who were living paycheck to paycheck do not have the financial cushion to absorb a shock of this magnitude. They need immediate assistance to pay the rent, keep the lights on, and put food on the table. In addition, many of the lowest-paid Americans who are still working may be risking exposure to the virus as they perform vital services in the economy.

Some parts of the economy are particularly hard hit. Just two service industries—accommodation and food services, plus retail—account for 42 percent of vulnerable jobs. Although many restaurants are using takeout and delivery, they may need fewer people to do so, and some will struggle to pay rent in the coming months. Stores deemed “nonessential” have been closed in much of the country. Travel has also ground to a halt, canceling many flights and emptying out hotels and tourist attractions. By contrast, losses could be much more contained in primary sectors such as utilities, agriculture, and mining. White-collar industries like professional services, finance, insurance, information, and management account for only 5 percent of cuts in this first wave of impact.

Looking at the impact across geographies, tourism-reliant states like Nevada, Hawaii, Montana, Florida, Wyoming, South Carolina, and Louisiana are likely to be the hardest hit in percentage terms (Exhibit 4). In Clark County (Las Vegas), more than half of jobs are vulnerable. The Strip has gone dark, sidelining the workers employed by its casino hotels, restaurants, bars, and shows. In the two-week period ending March 28, almost 164,000 Nevadans filed initial unemployment claims—roughly 11 percent of the state’s employed workforce.

California has far and away the highest total number of affected jobs given its size of workforce. Some 6.4 million of the state’s workers may be vulnerable, including 1.7 million in Los Angeles County alone. Piling onto losses in the service sector, L.A.’s entertainment industry has also put production on hold. New York and Texas each stand to lose more than 3 million jobs, at least temporarily. In New York City, the current epicenter of the crisis, the impact could exceed 1.5 million jobs.

Looking across industries, those experiencing the biggest negative impact typically pay low wages and employ workforces with low educational attainment (Exhibit 6). Previous research from MGI found that these jobs have disproportionate concentrations of African-Americans, Hispanics, and people with a high-school education or less.

More than half of the vulnerable jobs in the private sector were in firms with fewer than 500 employees—and almost 40 percent from businesses with fewer than 100 people (Exhibit 7). Small businesses have less of a capital cushion to continue paying furloughed employees, and they may have fewer opportunities to redeploy workers to other functions. In addition, 16 million self-employed workers are not captured in our analysis due to lack of available data. But many of them are either unable to do business as usual or facing a sudden drop in demand.

At the same time, America has work that urgently needs to be done

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McKinsey researchBureau of Labor StatisticsUnited StatesMcKinsey Global InstituteUS Department of Labor
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