Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons Unemployment Could Stay High Through the End of 2020

By Maurie Backman – Jun 22, 2020 at 7:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The U.S. has been grappling with double-digit unemployment since April. Here's why that may continue all the way into 2021.

In April, the U.S. jobless rate hit 14.7% -- the highest it's been since the Great Depression. May's numbers initially seemed more encouraging, dipping to 13.3%. But a deeper dive into that May data reveals that unemployment that month may have been underreported, and that the true jobless rate could really be closer to 16.3% -- an uptick from April.

Still, as the economy opens up, many are hopeful that the jobless rate will slowly but surely decline so that it looks much less scary by the end of the year. But here are three reasons why we may be looking at double-digit unemployment well into 2021.

Man sitting on floor reading book

Image source: Getty Images.

1. The potential for a second wave of COVID-19 infections

While many states have eased stay-at-home restrictions, which paves the way for more businesses to open back up and add jobs, a number of states are already seeing spikes in infection rates. In fact, health experts have been warning since the start of the pandemic that reopening the country too soon could result in a second wave of COVID-19 that not only forces another great lockdown, but thwarts any hopes of a rapid economic recovery.

Even if only some states experience that second wave, the result could be that those who are currently jobless stay that way for the rest of the year. Worse yet, it could cause an uptick in new job loss, at least at a local level.

2. Incentives for jobless Americans to stay out of the workforce

Right now, Americans on unemployment benefits are entitled to an additional $600 federal weekly boost on top of their normal benefit. The purpose of that boost is to help laid-off workers replace as much as their income as possible. In fact, some low or even moderate wage-earners are receiving more money from unemployment than they did at their previous jobs.

That $600 weekly boost is currently set to expire on July 31st, but lawmakers have been fighting to extend it all the way until 2021, and there's a good chance they'll succeed, at least to some degree (meaning, there will be some amount of supplemental unemployment income on top of state-paid benefits). As such, out-of-work Americans may not rush to return to the labor force. Why would they, when they can earn a higher wage from the safety of home?

3. Child care constraints

Although some smaller child care centers have stayed in operation throughout the pandemic, and others are beginning to open their doors once again, it's still unclear to as whether school will be back in session this fall. Since many people rely on schools to provide child care so they can work, it stands to reason that many may have no choice but to stay unemployed should schools remain shuttered, or open in a manner that's not conducive to holding down a job.

There's already talk that if schools reopen, it may involve scattered schedules and a mix of in-person and remote learning. That would, in turn, leave parents with full-time jobs unable to go back to those roles that can't be done remotely.

It's too soon to tell how unemployment levels will fare in the coming months, but we do know this: Right now, we're deep in the throes of a full-blown recession, and until progress is made on the COVID-19 treatment or vaccine front, our opportunity to fully recover may be limited. As such, it's not unreasonable to assume that we'll still be grappling with high levels of unemployment by the time 2020 comes to a close.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.