Personal Finance

A second Great Depression? Unemployment crisis hits big cities hard

Key Points
  • The unemployment rate in New York rose to 20.4% in June, even as the broader country's improved. Los Angeles had a 19.5% jobless rate.
  • The unemployment rate is a measure of financial hardship for American families. 
  • There is no official definition of an economic "depression." An unemployment rate near or above 20% is one good indicator, according to some economists. 
All theater performances in New York are suspended through the remainder of 2020 due to the coronavirus outbreak. Pictured, shuttered Broadway theaters.
Photo by Spencer Platt/Getty Images

Great Depression levels of unemployment have hit some of the country's biggest cities.

The coronavirus pandemic has pushed the jobless rate in New York, Los Angeles and other major urban areas to near or above 20%, nearly twice the national rate.

The unemployment rate is a barometer of financial hardship for American families, since losing a job typically leads to a significant drop in household income.

A rate of 20% means 1 in 5 Americans in the labor force can't find work.

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That's double the national peak during the financial crisis of 2008-2009 and a level unseen since the 1930s, when the country was in the throes of its worst-ever economic downturn in the industrial era.

"It's devastating, in terms of how high that unemployment rate is," said Ioana Marinescu, an assistant professor of economics at the University of Pennsylvania.

New York and Los Angeles

The local business mix and policies around mandated business closures are likely partly responsible for elevated joblessness in some major urban areas, said Wayne Vroman, a labor economist at the Urban Institute. Cities are also generally areas of higher business concentration when compared with other regions, he said. 

The dynamic is pronounced in New York, the nation's largest city and a major tourism and entertainment hub that supports thousands of jobs in a service economy that's been ravaged by the coronavirus pandemic.

New York's unemployment rate rose to 20.4% last month, according to state-level data issued Friday by the Bureau of Labor Statistics that detailed figures for some large metro areas. That's up from 18.3% in May and 15% in April.

The ranks of unemployed New Yorkers have grown by 261,000 people since April, to more than 811,000, according to the Bureau.

The trend stands in contrast to the broader U.S. labor-market recovery in May and June.

The U.S. unemployment rate fell to 11.1% last month from 14.7% in April, largely driven by furloughed workers being recalled to their jobs as states began reopening their economies.

New York, the hardest-hit area of the country early in the health crisis, has been cautious in lifting the economic shutdowns officials imposed to contain the spread of Covid-19.

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The city entered Phase 4 of its reopening on Monday, adding media production, professional sports (without fans) and some cultural institutions like zoos and botanical gardens to the businesses that can reopen, with some limits.

But Broadway theaters remain shut until next year, indoor dining is prohibited and officials haven't provided a timeline as to when gyms, malls, movie theaters and museums can reopen.

Los Angeles, the second-largest U.S. city, has seen a similar level of joblessness.

Its unemployment rate recovered slightly in June but remains startlingly high — at 19.5%, versus 20.6% in May, according to data published Friday by California's Employment Development Department.

That reduction is in jeopardy due to rising coronavirus cases in California, which recently led Gov. Gavin Newsom to re-shut bars and suspend indoor activity for restaurants, wineries, movie theaters and museums, among other businesses.

"Los Angeles, sadly, is going through a new health crisis," Marinescu said. "New York isn't.

"And yet, the unemployment numbers are still so bad," she added. "That shows to me how scarring the effects of the coronavirus are."

What is a 'depression'?

There isn't an official definition of an economic "depression."

But an unemployment rate around 20% or greater is a likely indicator, according to some experts.

"I think very few economists would find that controversial," Vroman said. "Twenty percent is so out of bounds for our post-World War II experience.

"It's new territory," he added, noting that even an unemployment rate of 15% would be considered "extraordinary." 

The metro area of Chicago, the nation's third-largest city, saw its jobless rate grow to 16.1% in June, from 15.4% the month prior, according to the Bureau of Labor Statistics.

The Detroit metro area saw an improvement in its unemployment rate, although it remained high, at 17.7% in June, versus 23.2% in May.

The only period in U.S. history to actually have received the "depression" label — the Great Depression — saw joblessness peak above 25%, according to the National Bureau of Economic Research.

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Since then, the highest it got was 10.8% during the recession in the early 1980s, according to the Bureau of Labor Statistics, which began tracking the official rate in the late 1940s.

Some big cities appear to have been spared some of the pain felt in other major metropolises, however.

I don't think many economists would classify a contraction lasting less than one year as a depression, so we aren't there yet.
Stephen Woodbury
labor economist at Michigan State University

The metro area of Houston, the nation's fourth-largest city, had a 9.9% unemployment rate in June, according to the Texas labor department.

The metro areas of Seattle, Miami and Cleveland had rates of 9.3%, 11.2% and 13.5%, respectively — all elevated by historical standards but far below depression standards.

As is the case in Los Angeles, some economists fear improving conditions could stall or get worse again as certain areas of the country reimpose economic shutdowns to halt an increase in coronavirus cases.

That could also be the case in Nevada, for example.

Las Vegas had the highest unemployment rate of any metro area in May, at 29%, according to the Bureau of Labor Statistics. (The agency won't issue June metro-area data for all big U.S. cities until next week.)

There are hints that unemployment may have improved last month in Las Vegas, since Nevada's unemployment rate fell the most of any state in June. But Gov. Steve Sisolak recently closed bars again and imposed limits on indoor dining.

Unemployment duration

However, elevated jobless spells in metro areas would likely have to persist for a long time in order to qualify the current recession as being severe enough to qualify as a depression, according to some experts.

"I don't think many economists would classify a contraction lasting less than one year as a depression, so we aren't there yet," said Stephen Woodbury, a labor economist at Michigan State University.

"In fact, I would guess most economists would be reluctant to call a contraction a depression until it has lasted two to three years, similar to the Great Depression of the 1930s," he said.

The current unemployment crisis in big cities also may not be a similar indicator of hardship it's been in the past.

Those able to collect unemployment benefits have been receiving an extra $600 a week, allowing some lower-wage workers to more than fully replace their lost pay. However, that supplement is scheduled to end after July barring congressional action.