Without a stimulus, unemployment could stay high for a decade

• The Congressional Budget Office projects that unemployment won't drop to pre-pandemic levels for a decade.
• But an additional stimulus could have a major impact on unemployment.
• Economists say the projections show the need for more relief.

The US unemployment rate may not reach pre-pandemic levels for the rest of the decade without additional stimulus from the federal government, according to projections from the nonpartisan Congressional Budget Office (CBO).

As Insider's Joseph Zeballos-Roig reported, that analysis sees the unemployment rate falling to 5.7% this year, and 5% in 2022. It's projected to hit 4% around 2025. In February 2020, before the economic shock from the coronavirus pandemic, the unemployment rate was 3.5%.

Overall, the CBO projects that the total number of people employed in the US will reach pre-pandemic levels in 2024. The CBO projections also see GDP returning to pre-pandemic levels in mid-2021, with real GDP growing 3.7% this year.

But those projections don't take into account any additional government spending on the pandemic; as Zeballos-Roig reported, the analysis itself could come into play during stimulus negotiations.

President Biden's proposed stimulus could have a major impact on unemployment

David Kelly, the chief global strategist at JPMorgan Funds, previously wrote that President Joe Biden's stimulus plan could drastically lower unemployment. In a "conservative" simulation run by JPMorgan of the $1.9 trillion relief package, which assumed that the ultimate cost was $1.5 trillion and $1.2 trillion was dispersed by September, unemployment dipped below 5% and "the Biden rescue plan could boost nominal GDP growth to 11.4% year-over-year by the end of this year."

In a note on Monday, Kelly further emphasized the impact that the stimulus could have on unemployment levels, especially as GDP levels grow.

"A statistical model of the relationship between real GDP growth and employment suggests that this could boost payroll employment by close to 10 million jobs by the second quarter of 2022," Kelly writes. But, he added: "It needs to be emphasized, of course, that this historical relationship is not that strong a guide in a very rapidly growing economy and that the inevitable delays in restarting and setting up businesses could delay this hiring."

Another factor in shrinking unemployment rates is the number of people of working age actively seeking employment: During the pandemic, fewer people have immigrated to the US, and millions of Americans have stopped looking for work, meaning we can assume "that the labor force by the second quarter of 2022 may be no higher than it was in the fourth quarter of 2019."

That crashing labor force - combined with quick jobs growth - could lead to a quickly sinking unemployment rate. For instance, Kelly said that adding 10 million jobs and four million people to the labor force could bring the unemployment rate to 2.8%.

But a hot jobs market like that, where wages are growing and it's harder to hire people, could also bring back in people like retirees and new immigrants.

As Kelly writes, "the exercise is useful because it re-emphasizes the potential for the combination of pandemic recovery and massive fiscal stimulus to overheat the economy."

Some economists agree, saying that the CBO projections underscore the need for more stimulus.

"The unemployment rate masks exits from the labor force - especially women who are caring for children who often are not in school," Gabriel Mathy, an assistant professor of economics at American University, said in a statement. "For those people that are not counted in the unemployment statistics, we're going to need to run the economy hot."