NYC job growth slows and layoffs rise as national economic outlook weakens; NY’s unemployment safety net ill-prepared if unemployment rises
The slowing national economy is clearly showing up in the New York job market data. Despite the upward private sector employment revision for late 2021 and parts of 2022, New York City’s private payroll growth averaged only 11,000 jobs per month (seasonally adjusted) for the three months through February of this year, compared to a monthly average of 19,000 jobs for the prior 12 months. Job growth continues in health care, social assistance, and many face-to-face industries, but it has flattened or fallen in the high-paying remote-working industries, including tech and finance. Between December and February (the latest available month for New York City employment data), the city’s tech industry reduced employment by 8,000 (three percent).
The most recent data on initial unemployment claims also reflect the rising layoff trend for both New York State and the U.S. overall. From the spring of 2021 to last November, the year-over-year trend in initial claims for unemployment insurance (UI) in New York State fell. (New York City claims data are not published.) But in the four months from November of 2022 through March of this year, the number of workers in New York State filing first-time claims for unemployment insurance generally has risen compared to the prior year. By the end of March, the year-over-year increase in initial unemployment claims was up nearly 10 percent, in line with the national increase.
For decades, UI has been seen as an “automatic stabilizer” when the economy falters. It serves to help laid-off workers maintain some purchasing power, preventing a downward economic spiral of multiplying layoffs. But this automatic stabilizer function presumes that an adequate reserve has been built up in the UI trust fund. In a New York Daily News op-ed two weeks ago, I detailed flaws in New York State’s UI financing that cause small employers to pay much higher payroll taxes than large corporations, and that have been holding back much-needed improvements in unemployment benefit payments relative to our neighboring states.
Which workers depend most on unemployment insurance benefits?
Since they tend to be employed in industries and occupations more subject to employment fluctuations, Black and Hispanic New Yorkers are more reliant on the unemployment insurance safety net than white or Asian workers. For example, Black workers comprise 18 percent of New York State’s workforce but were 26 percent of UI recipients for February 2023 (the latest month that data on the characteristics of UI recipients are available). Similarly, Hispanic workers constituted 19 percent of New York’s workforce but 24 percent of UI recipients.
Figure 3 shows that in February of this year, 82 percent of New York’s UI recipients were dislocated from industries generally paying low to moderate wages. Construction and administrative services each accounted for 17 percent of UI recipients, with most of those from administrative services likely laid off from temporary help jobs. (Many high-paying industries turn to temp agencies for staffing needs to reduce personnel costs for administrative and other support functions.) Retail trade, accommodation and food services, and health care and social assistance together accounted for 25 percent of all UI recipients in March. Only 15 percent of UI recipients then had previously worked in non-temporary positions in high-paying industries such as finance, media, tech, professional services, or corporate headquarters.
The Federal Reserve Bank’s policy of raising interest rates over the past year to curb consumer and business spending is clearly slowing the pace of economic activity and job growth around the nation and in New York. For months, there has been a great deal of apprehension, including on the part of New York State and City budget officials, whether the Fed’s actions would tip the economy into recession, or just weaken job growth to a crawl for a several-month period. However, in the wake of the recent failures of the sizeable “middle-tier” Silicon Valley Bank and New York-based Signature Bank, added concerns have surfaced regarding the viability of other banks that also have experienced significant reductions in the value of their bond holdings or loan portfolios amidst the Federal Reserve’s five percentage point interest rate hikes. The possibility that banks in this position will further limit business credit availability has added to the risks that the economy could enter a recession. Bloomberg News reports that U.S. bank lending contracted by the most on record in the last two weeks of March.
Added urgency to reform New York’s UI financing
These developments are not only worrisome in their own right; they also add to the urgency for New York State to significantly reform the way it finances UI. If the slowing economy results in further increases in UI claims, dislocated low- and moderate-income workers will suffer from a weakened unemployment safety net. New York’s chronic UI under-financing means that the State’s unemployment safety net is ill-prepared for any increase in unemployment.
Unemployment benefits haven’t been adjusted for the significant cost of living increase since the onset of the pandemic, nor for the increase in average annual wages. And rising UI claims mean that it will take longer to pay back the State’s $8 billion trust fund deficit, keeping payroll taxes higher for small businesses for a longer period of time.
New York’s inaction in fixing UI has compromised the system’s automatic stabilizer role. The Daily News op-ed made the argument for restructuring UI payroll taxes by raising the taxable wage base and shifting more of the payroll tax burden to larger corporations that have enjoyed record profitability in the wake of the pandemic. Without action from New York State’s legislature, small businesses will continue to pay higher payroll taxes, and will bear the brunt of weaker consumer spending given the diminished ability of New York’s UI system to serve its automatic stabilizer function.