Nobel Prize-winning economist Joseph Stiglitz says the U.S. is headed for a period of massive unemployment. The federal government must step in to shore up the revenue shortfall that states will experience as measures to halt the coronavirus take a toll on the economy.
"It's likely to be massive," Mr. Stiglitz said in an interview, speaking of the impending surge in unemployment claims. "Whether it will wind up to be the 25% that characterized the Great Depression or the 25% that characterized the Greek crisis, that's yet to be seen."
Mr. Stiglitz, a Columbia University professor and former chief economist at the World Bank, said some analysts now anticipate a quarterly decrease in gross domestic product as high as 5%, a number he called, "almost unprecedented."
"It would be associated with a very large increase in unemployment," he said.
With restaurants and bars shuttered and all nonessential city employers ordered to reduce their in-person workforce by 75%, no state in America might feel the economic effects of the crisis quite like New York. Many of the major hotels in Manhattan are in the process of closing, and they expect to see thousands of job losses in the weeks ahead.
"Our unemployment system is among the worst in the advanced world in terms of coverage," Mr. Stiglitz said in an interview. He said that because our replacement rate — the percentage of an individual's annual income replaced by unemployment benefits — is so low, most newly unemployed Americans will struggle to pay their essential bills.
"They won't be able to make their rent payments, utility payments, car payments or student loans, let alone have money for anything else," he said, noting that the unemployment system doesn't cover the self-employed or the part-time employed — including Uber drivers and other "gig economy" workers — or the 20% of American children who live in poverty.
"We don't have anything for people like that," he said.
This article originally appeared in Crain's New York Business, a sister publication to Pensions & Investments.