Coronavirus causing labor market ‘meltdown on a scale never seen before’

The shock to the U.S. labor market from the coronavirus has been merciless. After two years in which the unemployment rate stayed at or below 4%, thousands of Americans have been laid off over the past two weeks. 

Weekly unemployment claims rose from 211,000 to 281,000 last week, marking the biggest week-to-week jump since the 2008 financial crisis. Preliminary data at the state level indicates that 629,899 claims were filed this week in as many as 15 states.

“We’re braced for next week’s jobless claims number to spike by several hundred thousand; they could easily breach a million,” said Pantheon Macroeconomics chief economist Ian Shepherdson. “Nothing like this has ever happened before—the peak-to-trough increase before and during the 2007-to-09 recession was 375,000, with 665,000 claims in the worst week—and it will ram home the point that this is a meltdown on a scale never seen before,” he said. 

Bank of America now projects that nationwide unemployment claims will rise to 3 million for this week.

A restaurant sits closed in the early evening in Brooklyn after a decree that all bars and restaurants shutdown by 8 pm in New York City as much of the nation slows and takes extra precautions due to the continued spreading of the coronavirus on March 16, 2020. (Photo by Spencer Platt/Getty Images)

Many workers in the hospitality industry in New York lost their paycheck after Gov. Andrew Cuomo ordered restaurants to shut down and only offer delivery services. Gianfranco Sorrentino, owner of Il Gattopardo, the Leopard, and Mozzarella & Vino, three Italian restaurants in New York City, had to let go of all his workers: 160 full-time employees and another 20 part-time workers.

“I am the president of Gruppo Italiano, a nonprofit organization with 408 members, mainly restaurateurs. I’ve been talking with them every day for the last week and we didn’t see [much of an] increase in…takeaway and delivery orders,” Sorrentino said. “The increase was 10%-15% [once more people started working from home last week].” 

Sorrentino said a 10% increase in his restaurant business doesn’t cover the delivery service payroll expenses of having a few workers in the kitchen and a couple more delivering meals.

Costs keep mounting even though restaurants are shut down

Sorrentino’s catering business has already lost over $400,000 from cancellations for the months of March, April, and May, he said. Even though his three restaurants are shut down, they’re still costing $150,000 a month.

“[I’m not] including the rent, but I’m including the health insurance that we guarantee no matter what to all our employees, the insurance liability, the real estate tax and the utilities that we have to pay. And we are now on the verge [of talking] with the landlord and to see what they can do to help us, because this is really a crisis,” he said.

Sorrentino’s restaurants can only stay afloat for a few more months. “We went through our P & L balance sheet and the cash that we have in the bank. We are a strong company so we can last several months anyway, but after June or July we’re going to have a problem,” he said.

Many other New York restaurants are taking drastic measures. Restaurateur Danny Meyer laid off 2,000 workers after closing all 19 of his Union Square Hospitality Group restaurants. Danny Abrams, who co-owns six restaurants, laid off about 275 people. Celebrity chef and owner of the Crafted Hospitality restaurant group Tom Colicchio laid off 300 workers.

The New York State Restaurant Association told Yahoo Finance that approximately 30% of restaurants are closed. The remaining 70% are struggling to stay open for takeout and delivery. The National Restaurant Association projects that 5 million to 7 million workers will lose their jobs and the industry will lose $225 billion over the next three months.

“As Gruppo Italiano we’re pushing the governor to give us a break on the payment of the sales tax from 30 days to 90 days. [We’re also asking him] to freeze all of the loan, rent, etc., payments so that we can breathe for a while,” said Sorrentino.

During a press conference on Friday, New York State budget director Robert Mujica indicated that interest and penalties on late sales tax payments would be forgiven in an effort to support the restaurant industry. Melissa Fleischut, president and CEO of the New York State Restaurant Association thanked Gov. Cuomo for addressing some of their concerns.

“For some restaurants, this little bit of breathing room could mean the difference between paying employees and shutting their doors forever,” she said. “That being said, this relief is temporary, and we’ll continue to advocate for additional ways to help restaurants survive during this crisis.”

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