Denver, New York, Washington Miranda Miller is one of the early victims of the corona crisis. Her job as a waitress in a brewery near Denver was immediately gone when the restaurants had to close. “I am still totally shocked,” says Miller, who is now looking for bargains in the Costco wholesale trade and is carefully keeping a distance of two meters from other customers. She holds her shopping cart with both hands.
“My credit card bill, my car loan and of course my rent, I don’t know how to handle all of this now.” In February, she treated herself to an expensive couch. She could use the money well in her account now. “I’m very worried,” she says. “Who is hiring people now?”
Millions of Americans have felt the immediate economic shock caused by the corona virus. 3.3 million applied for unemployment benefits last week, the Ministry of Labor announced on Thursday. As many as never before and almost twelve times as many as in the previous week. Only 1.5 million applications were expected.
While the politicians in Washington are still struggling for the last details of a multi-billion dollar rescue package that is supposed to secure companies and jobs, many companies have long acted and separated from employees. It affects practically all parts of the economy: large hotel chains, airlines, restaurants, organizers, nail salons. In addition, there are hundreds of thousands who do not appear in the unemployment statistics: household helpers, nannies, dog sitters and employees of the so-called gig economy who work as self-employed and are therefore not entitled to unemployment benefits.
And that is just the beginning. James Bullard, head of the regional central bank in St. Louis, expects an unemployment rate of 30 percent and a 50 percent drop in economic output in the second quarter. It is the most pessimistic forecast so far. But all economists agree: America is facing an unprecedented slump in supply and demand that will trigger a cascade of economic and human tragedies.
The mantra of many market observers is still: It will quickly pick up again after a drastic slump. But critics warn of too much euphoria. It is now considered unrealistic that the recovery could take a V-shape, which means that the rapid economic downturn is followed by a rapid recovery.
U-shaped, with a steep increase after a long period of weakness, would be positive, believes Allianz’s chief economic advisor, Mohamed El-Erian. US President Donald Trump’s move to get the economy back on track as quickly as possible fuels concerns about a relapse, which would make the recovery look more w-shaped and cause additional damage.
“The situation today is not like a classic recession in which hundreds of thousands of jobs are being cut every month for an extended period of time,” says investment banker Daniel Alpert, who also teaches and teaches at Cornell University in Ithaca, New York helped develop a new labor market indicator. “The effect has an immediate impact, especially for low earners.”
Compared to Germany, slumps in demand in the USA hit unemployment figures particularly quickly. There is no statutory protection against dismissal. Contracts for low-skilled workers can often be terminated from one day to the next.
In more highly qualified professions, the employment contract often regulates a two-month notice period, for example, one month. However, as a rule, such employees are also released immediately upon termination and receive the outstanding salary instead of a severance payment. An instrument like German short-time work is unknown in the USA.
Governor Andrew Cuomo sends dramatic appeal to New York citizens
It was therefore clear to the parliamentarians in the Senate and the House of Representatives that they had to put up a protective shield for the foreseeable rapidly growing number of unemployed as quickly as possible. Not only to help the citizens themselves, but also to maintain their purchasing power.
If this fails, the economic downturn threatens to become a permanent recession. The Senate passed a $ 2.2 trillion corona relief package on Thursday night that relies on a broad mix of measures. It provides better protection for the unemployed, as well as direct help for companies and the issuing of loans.
The many needy small and medium-sized companies in particular are to be relieved with relief loans. They account for over 80 percent of jobs, like calculations German bank demonstrate. The loan will be repaid if companies use the money to keep their employees on the payroll during the crisis – a kind of improvised short-time work. Aid of $ 350 billion has been earmarked for these loans.
The Democrats didn’t go far enough. In the compromise negotiations, they also pushed through a significant increase in unemployment benefits: unemployed people are now to receive an additional $ 600 a week from federal funds for a limited period of the next four months.
This is a revolutionary step for the United States. Because unemployment benefits have so far been regulated by the individual states. The maximum rates are around $ 400 to $ 800 a week, depending on the state and previous income.
Also revolutionary: The $ 600 a week should also be given to self-employed people, for example drivers of chauffeur services like Uber or Lyft. They suffer particularly from the slump in orders. Since they have no employment contract, they do not qualify for the state’s previous unemployment benefits.
The new federal grants should more than double the weekly payment for many unemployed. Add to that the “helicopter money”, the one-time payment of $ 1200 for almost all adult US citizens and $ 500 for each child. So Washington is taking decisive action to improve the situation of the unemployed in the crisis.
So far, however, it has been questionable whether the money will reach those affected in good time. “The longer it takes, the deeper the slump will be for the economy,” warns Torsten Slok, chief economist at Deutsche Bank in New York. “It is a huge logistical challenge to send checks to 130 million households.”
For Miranda Miller, this cannot happen quickly enough. On Monday, she finally managed to apply for unemployment insurance. The systems in the state of Colorado are completely overwhelmed. From Monday to Thursday last week, applications for unemployment benefits rose by 1450 percent to over 20,000. Citizens whose last names begin with the letters A to M are now only allowed to submit their applications on Sundays, Tuesdays, Thursdays or Saturdays after 12 noon. “Every dollar counts,” says Miller. The next step is to negotiate with banks, delay payments and avoid penalty fees.
It is uncertain whether government aid is sufficient to absorb an impending wave of corporate bankruptcies and personal bankruptcies. The aircraft manufacturer alone Boeing demands $ 60 billion in state aid, the airlines $ 58 billion. The retail sector largely came to a standstill.
Before the outbreak of the corona virus, US President Donald Trump was always celebrating new records on the job market. The unemployment rate was still 3.5 percent in February, the lowest level in 50 years. Even then, the rosy numbers covered up the actual mood among the population. 40 percent do not have enough savings to meet unexpected spending of $ 400 or more, according to data from the 2019 central bank. The Americans are simply not prepared for long lost earnings.
The situation is particularly dramatic in New York, the US city with the greatest economic power in the country. All non-existential companies are closed. 29 percent of low-income households have lost at least one job in the family, according to a study by the City University of New York. Of households that earn more than $ 100,000 a year, 16 percent said that a household member lost their job.
Empty squares and streets in New York City
A one-room apartment in New York costs just under $ 3,000 on average. The New York Senate has introduced a bill to suspend all rent payments to businesses and citizens affected by the crisis. The restaurant chain Cheesecake Factory announced on Wednesday that it would no longer pay rents nationwide from April 1.
New Yorker Roberto Bruni has decided to give up immediately. He had opened a wine bar in Brooklyn with partners a few months ago. The business was starting up properly. “We are not trying to get the bridging money. It is too risky. We’re going to give it up entirely, ”says Bruni, who prefers not to read his real name in the newspaper. The waiters and cooks lose their jobs as a result.
There are cascade effects all over the country: when restaurants close, bakeries, florists and fish suppliers notice that too, because orders break down. Loss of rent hits real estate companies and financial institutions. A lack of tax revenue presents municipalities with financial difficulties. The creditworthiness of highly indebted companies is downgraded, which causes them financial difficulties.
But there are also companies that are hiring: the pharmacy chain CVS Health announced this week that it was looking for 50,000 employees. The supermarket giant Walmart is looking for 150,000 new employees for its stores and for the online business, and also Amazon wants to hire 100,000 people.
Recently, there were several Covid-19 cases in the camps at Amazon. According to media reports, workers often don’t even have time to wash their hands. That is probably one of the reasons why both Amazon and Walmart offer two to three dollars more per hour than usual.
Miranda Miller is also considering applying for one of these jobs. “I’ve heard a lot of bad things about working conditions. So I never really wanted to go there, ”she admits. “But the money has to come from somewhere.”
More: These are the components of the $ 2 trillion aid package