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Second- and third-wave layoffs coming from COVID-19

After starting in retail and hospitality, the virus’ effects are spreading to other sectors, including public workers.

With the streets of the Loop nearly empty on a weekday afternoon, the marquis of the James M. Nederlander Theatre, 24 W. Randolph St., advises pedestrians to “keep calm and wash your hands.”
With the streets of the Loop nearly empty on a weekday afternoon, the marquis of the James M. Nederlander Theatre, 24 W. Randolph St., advises pedestrians to “keep calm and wash your hands.”
Ashlee Rezin Garcia/Sun-Times file

There’s an odd thing about the way our virus behaves. It works on the economy the same way it works on people.

It starts out in isolated settings, but with such power and an ability to migrate that it quickly spreads its devastation. It’s tough to eradicate, and fighting it calls for us to fight our own natures. Social distancing is hard to us, and so is accepting curbs on our livelihoods and freedom.

Just as the health experts talk about the chances of second- and third-wave infections from COVID-19, so, too, is there a prospect of second and third waves of damage from its related job losses.

On the economic front, I’m thinking of forthcoming layoffs among white collar and then government workers. Taken together, they could set back a fiscal recovery for some time.

Carl Tannenbaum, chief economist at Northern Trust, noticed the similarities on the health and economic effects, writing recently, “At the outset of the outbreak, some of us thought the impact would be confined to China, and to its manufacturing sector. That ended up being a colossal miscalculation. The medical and economic consequences of the pandemic have consistently exceeded our expectations. The recession we recently entered could be deeper and more lasting that anyone suspected.”

The jobs impact first hit in the hotels, airlines, bars and restaurants. It spread to department stores, boutiques, fitness clubs, movie theaters. Then on to some manufacturers, or at least those whose products were not deemed essential for the crisis. The logistics business is starting to feel it because each shutdown takes out a customer. Then come all the service industries and consultants that draw income from what’s shuttered.

The publication Law360 has chronicled law firms such as Chicago-based Schiff Hardin that are reducing salaries and making other cuts. Technology companies that for a long time seemed to levitate on their own economic rules are crashing to earth. Software provider Toast, which serves the restaurant business, is cutting 1,300 people, or half of its work force. Chicago-based Groupon, deprived of its base of small merchants, is shedding 2,800 people via layoff or furlough.

Economist Amy Crews Cutts, who runs her own firm, staked out the edge of extreme pessimism by telling The Wall Street Journal she expects it’ll take labor markets five and a half years before they shed the pandemic’s effects.

In fairness, other economists believe the private sector was in such a happy mood that it’ll snap right back to hiring once the virus is under control. Balance the negative with the determined sunny siders and you get, what — a recession that lasts into late 2021 or early 2022?

A locked retail door in Chicago.
AP

Meanwhile, the implications for state and local government compound. Gov. J.B. Pritzker touched on the subject last week when he said he’s ordered state agencies to stop discretionary spending and hiring.

It’s the easy first step, with the tough calls coming later. Remember a few years ago, when schools and social service agencies asked an unsympathetic Republican governor for more scraps? It’ll happen again with Democrats in charge.

Demands for help from Springfield won’t abate with the virus. “The state has to do something to help the retail sector stand up again,” said Rob Karr, president of the Illinois Retail Merchants Association. With retail sales the second biggest source of state revenue, lawmakers have a direct interest in the assistance, he said.

Karr called for “some type of sales tax deferment,” as well as a measure to break up property tax payments into three or four annual installments, instead of the current two. His comments foreshadow the pressure Springfield will face to help businesses recover.

At my invitation, Karr tackled the big issue to come: the referendum in the fall asking voters to approve a graduated state income tax. Karr said higher taxes on the wealthy will penalize business owners and entrepreneurs, “the very sector that is being pounded right now.”

Others will argue that graduated rates benefiting low-wage earners will benefit those really being “pounded.” It’s a well-endowed fight that will be waged on the airwaves and in your mailbox starting soon.

Mayor Lori Lightfoot has rightly emphasized the city’s efforts to fight a virus, but she can’t avoid the accumulated costs much longer. Like Pritzker, she must confront the explosive issue of public sector layoffs, not to mention the pension debt, or risk tax increases that could further damage the economy.

Pestilence is a terrible foe. So is the math of income and outgo.

Pedestrians pass a closed store in Chicago.
AP