The rehiring of temporarily laid-off workers will continue to bolster the U.S. labor market’s recovery in the months ahead, but Goldman Sachs Group Inc. expects almost a quarter of those layoffs to become permanent.
In the early months of the pandemic, employers shed more than 22 million people from their payrolls. The staggering figure had a small silver lining: the majority of those layoffs were billed as temporary. More than 18 million people were classified as temporarily unemployed in April, the most on record.
When state economies began to reopen, the rehiring of many of those workers helped drive the labor market’s rebound in May, June and July. And with more than 9.2 million unemployed still on temporary layoff, “the labor market seems poised for additional large job gains later this year,” Joseph Briggs, an economist at Goldman Sachs, wrote in a research note on Friday.
In some ways, the staggering number of temporarily laid off workers could be a tailwind for the recovery. These workers tend to face better hiring prospects, and transitions to permanent unemployment remain relatively low. In fact, Goldman expects rehires to account for most of the 5.6 million net job gains they anticipate later this year.
However, “other patterns suggest that rehiring prospects for temporarily laid-off workers started to deteriorate in July,” Briggs wrote. Goldman Sachs now anticipates that almost a quarter of the temporary layoffs will become permanent. Some 2 million of those individuals could remain unemployed well into 2021.
While the transition rate from temporary to permanent layoffs remains historically low, the figure nearly doubled from June to July, and Goldman expects further increases as fiscal support and the Paycheck Protection Program dries up.
At the same time, survey data from the National Opinion Research Center at the University of Chicago indicates workers are increasingly pessimistic that they’ll return to their same job.
“Overall, these patterns suggest that temporarily laid-off workers will boost the labor market recovery for the remainder of 2020, but will increasingly transition to permanent unemployment as time separated from their prior job increases,” Briggs wrote.