As the United States takes action to contain COVID-19 transmissions and “flatten the curve,” physical distancing measures are the first line of defense—and they have profoundly altered the rhythms of everyday life. Countless neighborhood businesses have been shuttered, trips to the grocery store have to be carefully planned, and many parents are working remotely from home with their kids in the background.
As of March 30, three-quarters of Americans were living under state or local stay-at-home mandates or advisories—and the economic fallout has been swift and dramatic. Discretionary spending has taken a hit, consumer confidence has been shaken, and small businesses are struggling. While there is great uncertainty about the depth and duration of this downturn, recent McKinsey research outlined multiple scenarios that vary depending on the spread of the virus and the public-health response as well as the effectiveness of policy in mitigating economic damage. These factors will determine whether the downturn follows a U-shape with a prolonged trough, or a V-shape with a strong upward rebound. In most scenarios, the depth of the recession appears likely to exceed that of any experienced in the United States since World War II.
A note on methodology
We estimate the number of jobs that may be affected by stay-at-home and physical-distancing measures in a two-step process. First, we analyze all 804 occupations tracked by the Bureau of Labor Statistics. Using the US Department of Labor’s O*NET data on the characteristics of each occupation, we assigned each one a vulnerability rating of low, medium, or high (exhibit). We defined low-vulnerability jobs as those that are deemed essential (such as doctors), require no physical proximity to others (that is, can be done remotely), or are likely to guarantee pay even if workers are furloughed (such as K–12 public-school teachers). We assume these workers continue to earn their full income continue during shutdowns. Medium-vulnerability jobs (such as those in manufacturing) require workers to be in proximity to coworkers but not the public; we assume that shutdowns will affect 30 to 50 percent of these jobs. Finally, high-vulnerability jobs are nonessential roles that involve exposure to the public; we assume that shutdowns affect 70 to 90 percent of these jobs. Examples include restaurant servers or cinema cashiers.
However, physical proximity, essential work designation, and shutdown mandates are not the only factors affecting employment in this initial phase of combatting COVID-19. Our second step in the analysis factors in the large swings in demand experienced by multiple sectors as Americans radically change their behavior. An accountant who works for a cinema may not be vulnerable to job loss due to physical proximity, but if demand for going to the cinema is weak, they may be furloughed or laid off anyway. We make industry-level demand assumptions based on a combination of industry reports and McKinsey estimates of consumer spending on various categories of discretionary goods and services. We then assume that these changes in demand affect 80 to 100 percent of part-time jobs and 20 to 50 percent of full-time jobs in affected industries, under the rationale that companies are more likely to furlough part-time workers than full-time ones. (It should be noted that 16 million Americans are self-employed, and these are excluded from our analysis.)
Although some work is not needed during shutdowns, some industries and occupations are seeing high demand. Governments and healthcare institutions are rapidly hiring to fill critical pandemic roles, while grocery stores and pharmacies need to keep their shelves stocked and deliver online orders. We estimate this additional demand for healthcare, government, retail, and light-delivery jobs based on news reports documenting increased consumer spending, online ordering, and healthcare and pandemic management needs during the crisis.
Combining the outputs of steps one and two gives us a range of the number of jobs that may be feel the initial impact: 44 million to 57 million jobs negatively impacted by shutdowns, offset by 2 to 3 million new jobs in high-growth industries and roles. Throughout this article, we refer to the top of the range of 54 million net new jobs in both text and exhibits. We also looked at the geographic distribution of occupations to determine where losses will be concentrated.
When events are moving this quickly, there is always uncertainty—particularly with regard to the magnitude of knock-on effects as workers lose their income and work is redesigned. We do not attempt to size the longer-term second-order effects that could result from the fall-off in consumer spending and consumption. This impact is highly dependent on how quickly the virus is brought under control, the protocols put in place when the economy is reopened, and the scope and effectiveness of interventions. Nor do we assess longer-term shifts in work and the workforce that the COVID-19 crisis may spark, such as a shift to remote work or independent work; we leave these topics for future articles.
American workers are already feeling the pain. Initial unemployment claims for the week ending March 21 soared to 3,307,000, nearly 15 times higher than the 211,000 claims filed just two weeks before and shattering the previous high of 692,000, reached in 1982. Just a week later, the number for the week ending March 28 more than doubled again, to 6,648,000 (Exhibit 1). Our own analysis finds that the first phase of the battle to contain COVID-19 could leave 42 million to 54 million net jobs vulnerable to reductions in hours or pay, temporary furloughs, or permanent layoffs. Many Americans are simply unable to go to work for an uncertain period of time. (However, this is not a forecast of the unemployment rate; see the sidebar for more on methodology.)
Looking beneath the aggregate number, where will the impact be felt? This article builds on the McKinsey Global Institute’s (MGI) 2019 research on the US labor market and aims to identify the people and places most vulnerable to the first-wave effects of the pandemic. Our analysis finds that lockdowns disproportionally affect low-income workers. People who were living paycheck to paycheck do not have the financial cushion to absorb a shock of this magnitude. They need immediate assistance to pay the rent, keep the lights on, and put food on the table. In addition, many of the lowest-paid Americans who are still working may be risking exposure to the virus as they perform vital services in the economy.
Up to one-third of US jobs are vulnerable
To estimate the employment impact of the initial shutdown phase, we analyzed the vulnerability of more than 800 occupations based on whether or not they are typically deemed “essential” and whether they require close proximity to others. We then analyzed the sector-level effects of changes in demand related to physical distancing, such as the shift from restaurants to groceries, or from brick-and-mortar retail to e-commerce.
The findings are sobering. A nationwide shutdown could leave 44 million to 57 million jobs vulnerable to inactivity that could lead to reduced income, furloughs, or even layoffs, potentially affecting up to one-third of the entire US workforce (Exhibit 2).1 To be clear, that number does not translate into an unemployment rate above 30 percent, however. A small portion is offset as some industries facing surging demand, such as groceries, pharmacies, and delivery services, hire two million to three million workers. In addition, “vulnerable jobs” covers a range of outcomes. When nonessential employers shutter their businesses during stay-at-home mandates, some are continuing to pay furloughed employees; others are not. Many businesses will reopen and rehire, but others may not be able to stay afloat. Some workers have already been let go permanently. Many businesses that are staying open are cutting back hours in response to falling demand or redeploying workers to other tasks. It is impossible to gauge how many of these losses will be permanent. But millions of people are suddenly scrambling to pay their bills in the immediate term.
Some parts of the economy are particularly hard hit. Just two service industries—accommodation and food services, plus retail—account for 42 percent of vulnerable jobs. Although many restaurants are using takeout and delivery, they may need fewer people to do so, and some will struggle to pay rent in the coming months. Stores deemed “nonessential” have been closed in much of the country. Travel has also ground to a halt, canceling many flights and emptying out hotels and tourist attractions. By contrast, losses could be much more contained in primary sectors such as utilities, agriculture, and mining. White-collar industries like professional services, finance, insurance, information, and management account for only 5 percent of cuts in this first wave of impact.
The knock-on effects of the shutdown that may be felt later in the year are beyond the scope of our analysis. But consumer spending drives some 70 percent of GDP growth in the US economy, and a plunge in consumption could have cascading effects. If self-reinforcing recessionary dynamics take hold, further job losses may be in store. Much is riding on how quickly the virus can be contained, when lockdowns can be safely lifted, and the extent to which policymakers can help the individuals and businesses cope.
Which occupations are at risk, and where are they located?
Among the estimated 13.4 million jobs that could be affected in the restaurant industry, 3.6 million involve food preparation and serving (a category that includes fast food). Another 2.6 million restaurant servers and 1.3 million restaurant cooks are vulnerable (Exhibit 3). Almost 11 million jobs in customer service and sales could be affected, including 3.9 million retail salespeople and 3.3 million cashiers. The majority of these occupations employ people on a less than full-time basis.2 In some cases, people who were juggling multiple part-time jobs may retain some income; others could see their hours cut back. In all cases, their finances would take a hit.
Looking at the impact across geographies, tourism-reliant states like Nevada, Hawaii, Montana, Florida, Wyoming, South Carolina, and Louisiana are likely to be the hardest hit in percentage terms (Exhibit 4). In Clark County (Las Vegas), more than half of jobs are vulnerable. The Strip has gone dark, sidelining the workers employed by its casino hotels, restaurants, bars, and shows. In the two-week period ending March 28, almost 164,000 Nevadans filed initial unemployment claims—roughly 11 percent of the state’s employed workforce.
California has far and away the highest total number of affected jobs given its size of workforce. Some 6.4 million of the state’s workers may be vulnerable, including 1.7 million in Los Angeles County alone. Piling onto losses in the service sector, L.A.’s entertainment industry has also put production on hold. New York and Texas each stand to lose more than 3 million jobs, at least temporarily. In New York City, the current epicenter of the crisis, the impact could exceed 1.5 million jobs.
Low-income workers and small businesses are the most vulnerable
The workers bearing the brunt of the initial shock are the very people least equipped to weather it. Up to 86 percent of the initial impact affects jobs that were paying less than $40,000 per year (Exhibit 5). Almost all (98 percent) of the affected jobs paid less than the national living wage of $68,808 for a family of four.3 Even before the pandemic, some 40 percent of Americans reported that they could not cover an unexpected $400 expense without borrowing or selling assets.4 Finances were already precarious for many of the people who are now without work.
Looking across industries, those experiencing the biggest negative impact typically pay low wages and employ workforces with low educational attainment (Exhibit 6). Previous research from MGI found that these jobs have disproportionate concentrations of African-Americans, Hispanics, and people with a high-school education or less.
More than half of the vulnerable jobs in the private sector were in firms with fewer than 500 employees—and almost 40 percent from businesses with fewer than 100 people (Exhibit 7). Small businesses have less of a capital cushion to continue paying furloughed employees, and they may have fewer opportunities to redeploy workers to other functions. In addition, 16 million self-employed workers are not captured in our analysis due to lack of available data. But many of them are either unable to do business as usual or facing a sudden drop in demand.
At the same time, America has work that urgently needs to be done
While physical distancing and shutdowns are freezing some businesses, others are seeing spikes in demand. Some of the nation’s largest retailers are hiring tens of thousands of workers to meet demand for groceries and other necessities. Grocery stores, pharmacies, convenience stores, and pizza chains are all ramping up hiring. Hospitals and health providers are putting medical students immediately to work, and healthcare professionals who are retired or out of the workforce are streaming back.
We estimate that up to 3 million workers could find short-term employment as community health workers, warehouse staff, delivery drivers, and other critical roles. This number can be augmented if the private sector finds additional ways to keep workers productive. Even when large-scale repurposing is not possible, business can creatively redeploy staff who would otherwise be idle (shifting waiters into delivery-driver roles, for example) or offer voluntary reductions in hours to avoid layoffs. They can also partner with or participate in job platforms to help furloughed or laid-off workers immediately connect with temporary opportunities in other parts of the economy where demand is spiking.
The nation has an acute need for medical supplies and protective equipment to fight the pandemic, presenting an opportunity for manufacturers to repurpose factories to keep workers employed. Some are shifting production to turn out hand sanitizer; others are making protective masks, gowns, and scrubs. Multiple companies specializing in advanced manufacturing are gearing up to produce ventilators. This requires public–private coordination to ensure that technical standards are being followed and supplies get to the regions and facilities with the greatest need.
Many white-collar professionals are able to work from home during shutdowns. But in addition to the healthcare workers and first responders on the front lines of the pandemic, many blue-collar workers have to be physically present to do their work. They are stocking grocery shelves, cleaning hospitals, caring for the elderly, filling prescriptions, making and delivering food, delivering mail and packages, staffing warehouses and production lines, driving trucks, and collecting trash. These roles are often taken for granted in good times, but it is now apparent just how much society depends on them. The workers who are keeping these essential services going are doing so at the risk of exposing themselves to the virus—and they deserve equitable pay, sick leave, and adequate safety protections.
Vulnerable workers need a lifeline
The public and private sectors will need to respond decisively to help families meet their basic needs, create liquidity for businesses, and mitigate the potential long-term damage to the US economy. The $2.2 trillion federal CARES Act passed in late March is a good start, but it will need to be operationalized quickly to get cash payments into the hands of individuals in need. Getting Small Business Administration loans to struggling small enterprises can help them bounce back, preventing millions of temporary layoffs from becoming permanent.
When the emphasis eventually shifts from fighting the virus to reopening the economy, many of the jobs on pause today will come back. But others will not. Companies that have laid off workers may wait to see how the recovery takes hold before rehiring. Past crises have led to structural shifts in the economy and new ways of working; this one could do the same. Some trends already under way, such as the shift to independent work and the gig economy, or adoption of automation and artificial intelligence, may accelerate as companies seek to make their operations more resilient to future pandemics.
Now the “future of work” may have arrived even sooner than anyone anticipated. The need to create better opportunities for all Americans once seemed like a long-term project, but the crisis puts that imperative into the present tense. The United States has been through many challenges in the past, from wars and the Great Depression to the influenza pandemic of 1918—and it has always emerged stronger. The current crisis may similarly turn out to be a moment in history that forces us to build a more inclusive and resilient future.
