Based on an industry by industry analysis of small business employment, our base case estimate is employer small businesses will layoff about 21 million employees through July (1).
This is about 36% of those working for employer small businesses, which are SMBs with an owner/owners and at least one traditional (W2) full or part-time employee (2).
Our high case layoff estimate is 27 million (about 46% of employees of employer small businesses) and our low case estimate is 17 million (about 29% of employees of employer small businesses).
Under the base case estimate, the overall U.S. unemployment rate would likely increase to about 22% (3) (4).
The high case's unemployment rate would reach 28% and the low case 18%.
The chart below (click to enlarge) shows the data for the base and high cases. We excluded the low case so the chart would be readable.
The layoff percentages are Emergent Research (that's us) estimates.
However, they are based on recent estimates done by economists at the St. Louis Federal Reserve on contact intensive occupations and unemployment risk by occupation.
The implied overall U.S. unemployment rate estimates assume small businesses will lay off 60% of those laid off over the next 4 months. This is similar to the small business layoff share in the Great Recession of 2008-2009.
Just under 10 million Americans filed for unemployment insurance over the past 2 weeks, which means the current unemployment rate is likely already in the 8%-10% range.
So forecasting the rate to double over the next 4 months doesn't seem unrealistic.
Other current forecasts of the overall U.S. unemployment rate range from 12% to 32%.
The highly regarded labor economics at the Economic Policy Institute, for example, are currently forecasting the overall unemployment rate will reach 15% in July.
Let's hope we're wrong and they're right - or even better, the EPI forecast turns out to be too high.
Notes:
1. We've produced 3 layoff scenarios because the employment impact of the pandemic induced recession is still very uncertain. And given the high level of uncertainty, the actual layoff numbers could easily fall outside the range presented in these scenarios.
2. Our lay off estimates includes both full and part-time employees of small businesses. It doesn't include contractors or independent workers.
3. The BLS doesn't include people who are not actively looking for a job in the unemployment numbers. This means the unemployment rate may stay artificially low because of the pandemic keeping people who have lost their jobs from looking for work. Because of this, changes in the workforce participation rate may be a better measure of the recession's impact on employment.
4. Overall unemployment estimates are 45 million for the high case, 35 million for the base case and 28 million in the low case.
