Layoffs begin to mount as virus forces Massachusetts economy to shrink

Cloie Logan was laid off from two part-time jobs, including as a server at Casa Verde in Jamaica Plain.Pat Greenhouse/Globe Staff

Maybe never in history have we gone from an economy so hot to an economy that has essentially stopped. It’s like a car rear-ending another without the driver ever touching the brakes.

This week, Massachusetts got a glimpse of what the virtual shutdown caused by the coronavirus has wrought: In one day, the state received 19,884 new initial unemployment claims. That was more than the number of claims made for all of February.

The economic landscape changed dramatically after Governor Charlie Baker Sunday night restricted restaurants to takeout and delivery only and limited public gatherings to 25, a measure that would in effect force shops, gyms, and theaters to close until April 6. Essential businesses, such as grocery stores and pharmacies, can remain open.

“If you had told me a month ago I would be laid off from both of my jobs and sequestered at home for a month, I would have said you’re crazy,” said Cloie Logan, who was laid off as a server at Casa Verde restaurant in Jamaica Plain Monday.

Logan, 24, also lost her job Sunday at Jamaica Plain bakery-cafe Monumental Market, which opened a month ago. She still has a job to return to at Casa Verde, but she’s not confident the COVID-19 outbreak will be under control anytime soon.

“I think it could get much worse before it gets better,” she said. “I’m unsure that a month is enough time for the cycle to crest and fall again.”

Monday’s dramatic one-day increase in unemployment claims is unusual because they usually flow in over time as the economy slows. Another reason for the surge: Unemployment benefit rules have been relaxed to allow workers who have lost their jobs due to a COVID-19-related shutdown or quarantine to be eligible.

How bad the Massachusetts economy might get and how high the unemployment rate might rise will depend on how long the country must be forced to hibernate.

The number of pink slips should actually be higher, but some major employers temporarily shuttering locations — including Apple, Nordstrom, Life Time Fitness, Jordan’s Furniture, and all three Massachusetts casinos — have decided to continue to pay their workers. But it’s unclear what happens if the shutdown remains in effect for a longer period.

"There are not a lot of models from the past to go by," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in a telephone interview.

Rosengren pointed out that the economic cost in Japan, South Korea, and Singapore so far has been much lower because they acted faster to stem the spread of the virus. Italy, he said, waited way too long.

“It remains to be seen where in the two [extremes] we fit in,” he said.

The reversal of fortune has been dizzying. In a matter of weeks, Massachusetts employers have gone from worrying about how to hire enough workers — unemployment had been at a near-record low of 2.8 percent — to deciding whether they can avoid layoffs.

The first casualties are workers in businesses taking the hit from social isolation measures: restaurants, bars, and hotels, a sector that employed 317,000 people at the start of the year, and retailers, with payrolls of 352,000. Together, these industries account for 18 percent of Massachusetts’ 3.7 million jobs, according to state data.

With the stock market in a near free fall, workers in the financial and insurance sector, which employs 176,000 people, could be vulnerable soon.

In Boston, Mayor Martin J. Walsh closed down construction projects, a move that doesn’t bode well for an industry with some 162,000 workers statewide.

The good news: The state’s large health care industry and its 647,000 jobs will be OK for obvious reasons, while education services (172,000 jobs), including colleges and universities, should be in decent shape once students can return to campuses, though those from overseas may not come back in the same numbers.

At the start of the last recession, in 2007, the Massachusetts economy initially held up better than other parts of the country because health and education, technology, and science sectors— which represent a larger part of the state’s economy than the nation’s — performed better than manufacturing and construction, according to a 2009 state report.

“But when the recession spread to these knowledge-based industries, Massachusetts was inevitably hit with steep job losses,” the report said.

The state lost 140,300 jobs from the peak in April 2008 to the trough in October 2009, a decline of 4.2 percent. The jobless rate went from 4.5 percent through the summer and fall of 2007 to 8.8 percent in the winter of 2010. It took until November 2014 for the unemployment rate to return to 4.5 percent.

If Massachusetts payrolls fell by the same percentage as they did during the Great Recession, the state would lose about 156,000 jobs.

A long recession also risks depleting the state’s $1.7 billion unemployment insurance trust fund, which falls below federally recommended solvency levels. The fund isn’t as flush as other states’ because the Commonwealth pays a maximum benefit of $823 a week out, among the highest in the country, for up to 26 weeks typically.

No one is saying the state should give out less; in fact, there’s pressure to increase the size of the checks from 50 percent of lost wages to 75 percent. The fund is built by employer contributions.

It’s difficult to forecast how long the Massachusetts fund will last because the economy has never gone through such an orchestrated shock in order to end a pandemic.

But one thing’s for sure: “States are going to face pretty rapidly increasing claims,” said Ryan Nunn, policy director for the Hamilton Project, a center affiliated with the Brookings Institution.

He doesn’t believe the Massachusetts fund will be immediately exhausted, but if it runs low, the state can always borrow from the federal government, which it did during the last recession.

The economic picture is likely to remain murky for a while, said Alan Clayton-Matthews, a Northeastern University professor and coeditor of Massachusetts Benchmarks, a publication that tracks the state economy.

“Good information on employment and the unemployment rate will lag what is actually happening. I think it is likely that wage and salary incomes will decline more than employment, as many people will be working fewer hours but still be counted as employed.”

Patricia Sinacole, CEO of First Beacon Group, a human resources consulting firm in Hopkinton, has heard from many clients seeking advice on how to proceed in uncharted waters.

“Tech companies in Cambridge, a machine shop in Norwood, a nonprofit in Wellesley — a huge range that are struggling with the unknown,” she said.

Sinacole is advising companies to explore any range of options before firing workers, such as hiring freezes, shorter work weeks, and pay cuts.

“No one size fits all," Sinacole said. “Anything to buy a couple more weeks.”