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75% job losses temporary – do not count on it

The economy lost between 20 to 30 million jobs in April per the latest monthly BLS report, with the unemployment rate around 15%. Of those Americans who lost their jobs, about 75% of them say their job loss is temporary and they expect to be called back to work. Unfortunately, that is likely optimistic thinking for most of them.

The COVID-19 related job losses have been devastating. In fact, the 20 million number reported understates the true job loss during April. As the data for the report was assembled the week of April 12 through 18, and since April 18 weekly unemployment claims and continuing claims have continued to increase. This means that the 20 million loss reported is on the low end. But will 75% of those jobs due to COVID-19 soon come back and be temporary job losses? Most likely not.

Business 101

First of all, like we have said multiple times, these are unprecedented times and things can change by the hour, day or week. That being said, unfortunately for those tens of millions of people who have lost their jobs, always keep this in mind. Anyone who starts, owns, invests, or runs a successful business needs to be an expert at their “numbers”, and business is all about the numbers. Revenue, traffic counts, gross margins, income, cost of goods, income, etc. And those critical numbers that are the lifeblood of most businesses are not in favor of those employees who have lost their jobs.

Let us look at some of those numbers and some basic business concepts at a “10,000 foot level”. The fact is a restaurant cannot come close to being profitable at say 25% capacity, especially when the high margin drinks from the bar (which are in most restaurants) are not offered as the in house bar will be closed or is at a limited capacity. Even at 50% capacity it would be exceedingly difficult for a restaurant to make money. Now some of those reduced sales could be offset by deliveries, take-out business, etc. (but even then you cannot deliver high margin drinks).

But even if some restaurants can make a profit at a much reduced capacity, or come close its profitability at 50% capacity, a restaurant at 50% capacity will not need as many servers or staff, even if accounting for say activities such as more cleaning. If the kitchen or bar are not serving as many customers at 50% capacity, they do not need as many bartenders or chefs.

Retail stores cannot make money when their retail locations are at 25% capacity. Hotels cannot make money when they operate at say 50% capacity due to limited travel from the Coronavirus pandemic. Airlines flying at 66% capacity cannot make money. And the list goes on and on.

And those businesses also indirectly “feed” other “white collar” jobs. As if a law practice has attorneys that advise restaurants, they will not need as many staff. A architect that helps design retail stores or restaurants will not have as much work. And that list also goes on and on….as if a white collar job supports a certain industry that is impacted, then “white collar” jobs will also continue to be impacted in a negative, permanent way. The economic slowdown will “spread” to other industries, especially since we are in a global economy.

Will most of the 20 million jobs come back on short notice when many businesses that employ those workers will struggle to be profitable (if not loss money)? Not to mention, if a business only has 50% or 75% of the sales that they did before COVID, why would they need 100% of their employees back?

Even at 50% capacity many (all?) of these businesses are still money losing. Now some stores, restaurants, businesses, etc. may be able to offset some of that reduction in on site capacity with higher online sales or drastically changing their business model, but that is easier said than done and sometimes costly. Or they may try to increase prices (i.e. cost of a plane ticket going up 50%+ or restaurants adding surcharges). While a business that loses money in this economy want to reopen?

In addition to those challenges which impact employment, who wants to start a new restaurant, bar, retail store, build a hotel, etc. if they can’t operate at full capacity, can’t offer the same volume of sales due to reduced capacity, over if they have higher upfront costs to design. Many of them are already low margin businesses, and is someone going to say invest 100K into a restaurant or a business when their rate of return is even less and much more risk?

What to do if think job loss is temporary?

Of course, no one knows for sure as things change. But it is almost certainly overly optimistic for tens of millions of Americans to think their job loss is temporary. Millions of jobs will not ever come back and the job loss will not be temporary, at least in the same fashion.

That being said, the job market is evolving and changing rapidly.

For every retail store that closes (and those job losses are permanent), there may be another store such as Target or online retailer (Amazon) that is hiring. For every restaurant that closes or does not bring back 100% of its staff, another restaurant with say a big delivery operation (think fast food) may be hiring. For every travel call center job eliminated, there may be another customer service job available at a tele-health company. Or if you are a white collar professional who was furloughed or laid off because X percentage of your companies’ revenue is in a hard hit industry, there may be another growing industry you can transition too.

Our advice? If you have lost your job due to Coronavirus, and you think it is temporary, it is very, very risky to blindly hope it will come back and just be a temporary job loss. Stay open to new opportunities in a similar or different industry and even actively look for a new job, such as online retail vs physical. Or whatever…do something actively! Do not just sit back and “hope” your employer will call you back. As they have no obligation too, just like you are not obligated to sit back and wait on them for a job.

joncmac

Jon McNamara is the CEO of needhelppayingbills.com, a company that he started in 2008 and that specializes in helping low income families as well as those who are in a financial hardship. He also found NHPB LLC, a company committed to helping the less fortunate. Jon and his team also provide free financial advice to help people learn about as well as manage their money. Every piece of content on this website has been reviewed by him before publishing and many of the articles he has personally written. Jon is the leading author for needhelppayingbils.

2 thoughts on “75% job losses temporary – do not count on it

  • May 13, 2020 at 9:43 am
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    How many times does it need to be said that just reopening the economy isn’t going to magically fix it? Many of these companies are gone forever. Many more companies aren’t going to survive the rushed reopening and the massive expenses for labor with low sales not to mention the spike in new cases we are going to see with it.
    I’m going to tell you the truth. Well over 500,000 Americans are going to die and the economy is going down the toilet, sorry to be the bearer of bad news.

    Reply
  • May 13, 2020 at 9:50 pm
    Permalink

    I am a server and as of right now, due to COVID-19, I am out of a job for the next 30 days. With the recent situation of the COVID 19, I have been temporarily laid off.
    I’ve been trying to apply for unemployment benefits but not have much success with the website or the 1-800 number it directs me to call.
    I wanted to know where and if there was assistance I could look into to help with my current situation and hardships.
    I am requesting to qualify for the payment deferral. Any help would be greatly appreciated.
    Please advise and thank you for your time.

    Reply

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