Is unemployment really as deadly as coronavirus?
In the 2015 movie “The Big Short” about the Great Recession, Brad Pitt’s character Ben Rickert is strolling in Las Vegas with two Wall Street colleagues who are elated about all the money they made betting that the US economy was in trouble.
Their bet, of course, was that problems with mortgage-backed securities would hurt banks and the entire American financial system. That’s exactly what happened in real life.
Pitt’s Rickert chastises his colleagues for acting so happy and says: “Every 1 percent unemployment goes up, 40,000 people die. Did you know that?”
Is that 40,000 figure just Hollywood nonsense?
Well, it’s not. Or at least it is close. And that, in a nutshell, is what President Trump has to deal with right now.
If he opens up the economy, there could be a spike in cases of coronavirus and a rise in deaths unless there is some medical breakthrough. Already, 41,000 people are reported to have died from the disease in the US alone.
But if the president keeps the economy closed, the unemployment rate is bound to climb and if you believe Pitt’s character — and the academic research upon which that statement is based — people will die because of that as well.
There’s a technical term for this — it’s called being damned if you do and damned if you don’t.
Before the economic mess this virus caused, the US unemployment rate was just 3.5 percent. In March, it rose to 4.4 percent. And there are predictions that it will go as high as 13 percent and maybe even 15 percent before people start returning to work.
So, if the calculations are correct, that 10 percentage point-plus rise in the jobless rate would cause more than 400,000 deaths that have nothing to do with the virus and everything to do with the distressed economy.
And, of course, there will be a lot of financial troubles for those who don’t die. But let’s just look at just the death rate.
The actual figure in academic research is a 37,000 increase for each percentage-point rise in the unemployment rate. It comes from a book called “Corporate Flight: The Causes and Consequences of Economic Dislocation” by Barry Bluestone, Bennett Harrison and Lawrence Baker.
“Corporate Flight” was published in 1982 and mainly had to do with companies moving operations overseas. I couldn’t reach Bluestone, Harrison or Baker, but last week I was able to contact Wade Thomas, who teaches economics and business at SUNY Oneonta and who quoted those figures in his own co-written 2005 book called “Economic Issues Today: Alternative Approaches.”
Here’s the paragraph from Thomas’ book that applies: “According to one study [the one by Bluestone et al.] a 1 percent increase in the unemployment rate will be associated with 37,000 deaths [including 20,000 heart attacks], 920 suicides, 650 homicides, 4,000 state mental hospital admissions and 3,300 state prison admissions.”
Thomas says things are different today, but those old studies may help us understand the hidden problems that the coronavirus is causing.
“I would hesitate to extrapolate from the old estimates of corporate flight as a means of quantifying present circumstances,” Thomas wrote to me in an email, adding that “there are too many variables involved now to assert definitive cause and effect between unemployment and the litany of health consequences cited in the 1981 study.”
But, Thomas said, “it informs our thinking about some of the potential problems that may accompany this wave of joblessness.”
Two things are definitely different today. One, Washington acted quickly to help the unemployed. It didn’t when companies were moving overseas.
And, as I said in my last column, a great deal of those who have lost their jobs because of the virus are only being furloughed. They are scheduled to get their jobs back once companies reopen their doors.
Let’s hope that the data from 1981 is — excuse the expression — dead wrong.
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