Share this article

Open for business
Find out the latest updates from local businesses as our region reopens.
print logo
Commentary

Remember when the steel plants closed? This is twice as bad.

David Robinson

For decades, we've looked back at the shutdown of the steel plants as the low point for the Buffalo Niagara economy.

But when it comes to unemployment, what we're enduring now is much worse. Probably twice as bad, local economists believe.

With much of the economy shutting down because of the coronavirus outbreak, the unemployment rate across Buffalo Niagara now likely tops 20%, and it could be closer to 25% or even 30%.

"In the short term, it looks like it's going to be over that 20% mark," said Julie Anna Golebiewski, a Canisius College economist.

That's bad, especially when you consider that unemployment here peaked at around 15% in late 1982 and early 1983 during the worst months of the manufacturing apocalypse that occurred when the steel plants shut down and a deep recession was battering the rest of the local economy.

For both of those years, unemployment averaged around 12%, and it took years for the local economy to recover because so many laid off factory workers had skills that no longer fit the jobs available.

This downturn doesn't involve a sweeping restructuring of the region's economy, as the downturn four decades ago did. With this one, its severity and swiftness are unprecedented.

We won't get economic data that fully measures the extent of the surge in local unemployment until mid-May, although the State Labor Department said Thursday night that claims for unemployment benefits were more than six times higher last week than the week before, and grew by at least 284% – that's nearly four times more – in each of the state's 10 regions, including Western New York.

That's just the start of the surge in workers filing for unemployment. Companies are continuing to cut staff. New Era Cap Co. on Friday put 70% of its 600 workers company-wide on a furlough that it expects to last 60 days, while cutting pay for the senior staff that still is on the job.

So it's easy to see that joblessness already could be approaching levels that are twice what the region endured almost 40 years ago.

Let's do the math: Golebiewski thinks it's reasonable to assume that about 75% of the region's retail jobs have been slashed, along with 75% of the region's hotel and foodservice jobs. Add in maybe half of the region's factory jobs, and that gets you an unemployment rate of around 24% without even a single job lost from any other part of the economy.

"Those aren't absurd values," she said.

Even scarier, this is just the first wave. There will almost certainly be even further cuts as people start missing paychecks or have to start getting by on a fraction of their previous income as unemployment benefits kick in.

"We haven't seen the ripples from this," said George Palumbo, another Canisius economist.

"We haven't seen people missing paychecks yet," he said. "We're going to start seeing a lot more people without incomes and being afraid to spend."

With the likelihood that one of every four or five local workers now is without a paycheck, those consumers now are focused on riding out the downturn, figuring out how to pay the mortgage or the rent, pay their other bills and keep groceries in the house.

For those who have been lucky enough to keep working, it's gotten much harder to spend money – even if they want to. Bars and restaurants are closed. There are no concerts, movies or sporting events to go to. Many stores have closed. You can't get a haircut or get your nails done. You can't even bring the dog to be groomed.

"In the short term, when you spend less, you save money," Palumbo said. "But in the long term, everybody's income will go down."

That's why it could get even worse. The drop in spending could lead to even further job cuts. If the outbreak spreads as some health officials fear, even essential businesses that still are operating could have trouble keeping going because so many of their workers are sick. And the longer such big swatches of the economy are essentially shut down, the harder it will be for small businesses to bounce back.

The stimulus package approved Friday would help.

In addition to the checks for up to $1,200 that will be coming, unemployment benefits are being beefed up in a big way. For four months, payments of $600 per week are set to go out to all workers receiving unemployment benefits. That's $600 on top of their standard unemployment benefits.

Workers who don't qualify for regular unemployment benefits – including the self-employed and gig economy workers such as Uber drivers – also are entitled to a special pandemic benefit equal to half the state average unemployment benefit plus $600 a week.

"It's important to keep people's paychecks coming in some form," Palumbo said.

For some workers – especially lower-paid ones – the enhanced unemployment benefits could be more than they were earning before they lost their jobs.

Jay DePerno, who owns Elm Street Bakery in East Aurora with his wife, Kim, worries that the enhanced benefits could give those workers an incentive not to return to work when the crisis eases.

Elm Street already has cut what had been a 45-person workforce down to just six people. When business rebounds, DePerno worries that he will have to compete for workers with wages based on what they would earn with enhanced unemployment, and not just the pay rates set by the market.

"It would be just a disaster financially for an entity like us," he said. "We're just trying to stay open."

And that's where the time element comes in. With each week that the lockdown lasts, the bigger the drain becomes on small businesses such as Elm Street, which still have to pay the rent and keep the lights on as their sales plummet.

"It's important to keep those businesses viable so they can come back in some form," Palumbo said. "But I don't know how many of those jobs are going to disappear for good."

There are no comments - be the first to comment