1. As of late May, Tim Bartik of the Upjohn Institute calculated that this method implied state and local government shortfalls of just under $1 trillion by the end of 2021. Recently, he used a more updated projection from the Congressional Budget Office (CBO) that sees lower unemployment over the next 18 months, and the estimated shortfall has fallen to closer to $900 billion. However, there are reasons to think this improved unemployment rate forecast by the CBO should be taken with a large grain of salt. For example, CBO estimates that the unemployment rate will average 15.1% in the second quarter of 2020. In April and May, the unemployment rate averaged 14%, so this might seem like a pessimistic forecast by CBO. However, a very large number of people were likely misclassified in these months as “employed, not at work due to illness” instead of unemployed. Further, there has been a very large reduction in labor force participation since February, and these people very likely want a job and just couldn’t actively search due to economic shutdowns. Accounting for these groups, the more accurate unemployment rate likely averaged 21% in those two months. Even if misclassification and the issue of labor force participation goes away entirely just in one quarter, this six-percentage-point difference in unemployment measures in the second quarter alone would push estimated budget shortfalls back over $1 trillion, even with the rest of the newer CBO unemployment forecast adopted.
2. To get an estimate for nominal GDP at the end of 2021, we take estimates from the Congressional Budget Office (CBO) for nominal GDP at the end of 2020 and multiply by 1.045, assuming a 4.5% growth in nominal GDP between the fourth quarter of 2020 and the fourth quarter of 2021. The CBO forecasts a 2.8% growth in real GDP in this time; a 4.5% nominal rate hence assumes a 1.7% growth in the GDP price deflator, on par with its growth in recent years. For payroll employment in the fourth quarter of 2021, we take the average of four forecasts of this measure, from the Congressional Budget Office, Moody’s Analytics Economy.com, J.P. Morgan, and Goldman Sachs. Our estimate for the multiplier of state and local spending is taken from the various estimates surveyed in Bivens 2011.91视频在线