(NEW YORK) — As the U.S. hurtles closer to a default on its debt as early as next month, the economic consequences could prove devastating, especially for millions who stand to lose their jobs.
Even a brief debt ceiling breach of about one week would slash 1.5 million jobs, raising the unemployment rate from 3.4% to 5%, a Moody’s Analytics report found in March.
An extended breach of roughly two months would bring a massive wave of unemployment, cutting nearly eight million jobs and pushing the unemployment rate to 7.8%, the report said.
“The economic downturn that would ensue would be comparable to that suffered during the global financial crisis,” Moody’s Analytics warned of a prolonged debt ceiling breach.
Failure to raise the debt ceiling would send financial markets into turmoil, raise interest rates at a moment when elevated borrowing costs already weigh on economic activity and all but ensure a recession.
The potential job losses, however, would not fall evenly across occupations, demographics and regions, experts said. Instead, some workers would be hit hard while others would be spared.
Here’s what to know about who will lose their jobs first in the event of a U.S. debt default:
Which occupations will be hit first by a debt ceiling breach?
The initial jobs losses that result from a potential debt ceiling breach will center in the construction and manufacturing sectors, Michelle Holder, a labor economist at John Jay College of Criminal Justice, told ABC News.
If a debt default takes place next month, it would arrive as job gains remain robust but have begun to slow, leaving the labor market vulnerable to a downturn in the goods-producing occupations, she said.
“When the economy starts to slow down, people stop spending money on things you can touch: cars, homes, computers and clothes,” she added.
In turn, job cuts will strike construction and manufacturing because those are the sectors most sensitive to a contraction in consumer demand, as employers try to weather an anticipated decline in revenue, she said.
In the event of a debt ceiling breach, major job losses would also hit financial services, leisure and hospitality and retail, the Moody’s Analytics report found.
Which worker demographics will suffer the first job losses?
The employees most likely to lose their jobs first during a default-induced downturn are Black and Hispanic workers as well as young and less-educated workers, Holder told ABC News.
The initial job losses will also disproportionately affect men because they are concentrated in the manufacturing and construction sectors most at risk, Holder said.
The job cuts are set to arrive weeks after fresh government data showed that the Black unemployment rate reached 3.7% in April, the lowest level recorded since the U.S. began tracking such data in the early 1970s.
Between the late 1980s and mid-2000s, government employment data shows “considerable evidence” that Black workers are among the first ones fired as the economy weakens, according to an economic study published in 2010 in Demography, an academic journal.
“We’re going to see a reversal of this resurgence of Black employees, particularly Black men, in the labor force,” Holder said.
Which states will see unemployment rise the most?
The states most vulnerable to job losses are those sensitive to a sudden erosion of the business environment, particularly in regions dependent on tourism- and travel-related spending, the Moody’s Analytics report found.
Such states at risk of sharp job losses include Arizona, Florida and Nevada, the report said.
As consumers cut back on spending and avoid big-ticket purchases amid high borrowing costs, the states reliant upon the auto industry will also face significant difficulty, Moody’s Analytics said. Chief among those states are South Carolina and Michigan, the report said.
The anticipated downturn in manufacturing will also fall disproportionately on goods-producing states like Tennessee and Kentucky, the report said.
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