What to watch on jobs day: Missing expectations for job growth isn’t worrisome—yet
Last month saw disappointing growth in payroll employment, with just 266,000 jobs added in April, when many expected a number well over 500,000 (and maybe even over a million). Ahead of tomorrow’s release of the jobs report for May, we want to put that headline number in perspective, particularly in how this relates to policy choices.
The Biden administration has clearly decided to go big on the amount of fiscal support they are going to provide the economy over the next year—passing the $1.8 trillion American Rescue Plan (ARP) on the heels of a $900 billion package passed in December. They are determined to not repeat the policy mistake that led directly to a lost decade of economic potential after the Great Recession in 2008-09, when the government provided too little fiscal support. It took 10 full years after the Great Recession just to regain the pre-2008 unemployment rate low point, and even when this unemployment rate low was regained in 2017, it was partly because labor force participation still remained depressed. All of this raises a couple of questions: Just how much faster can recovery be this time, and would another month as disappointing as April make this fast recovery impossible to attain?
We think one reasonable metric of success would be a full return to pre-COVID labor market conditions by the end of 2022. These pre-COVID conditions included an unemployment rate of 3.5% and a prime-age labor force participation rate of 82.9%. Restoring pre-COVID labor market health by the end of 2022 would require creating 504,000 jobs each month between May 2021 and December 2022. This average monthly jobs growth target starts from today’s 9.0 million “jobs gap” relative to February 2020, and includes the need to absorb growth in the working-age population over the next 20 months (this growth in the working-age population requires roughly 55,000 jobs per month on its own). Hitting this end-of-2022 goal would see the U.S. economy reach 4.0% unemployment by mid-2022.
What if it’s not a labor shortage, but just the return of tipping customers driving wage growth in restaurants?
One of the most widely discussed data points from last month’s jobs report was the rapid acceleration in wage growth for the leisure and hospitality (L&H) sector, particularly among production and nonsupervisory workers. This sector-specific wage acceleration (not seen in other sectors), combined with disappointing economywide job growth for the month, launched a huge debate about potential labor shortages. We wrote previously about why concerns over labor shortages were largely misplaced. Among other things, the rapid wage growth in L&H was accompanied by very fast sectoral job growth, so there was no evidence that any labor shortage was impinging on overall growth.
Further, this acceleration of wages in L&H might provide less evidence of even a sector-specific labor shortage than previously thought. When economists or other analysts express concerns about labor shortages, they generally mean a shortfall of potential employees that forces employers to gouge deeper into their profit margins to raise wages to attract workers. At some point this gouging will become unsustainable and so hiring will lag.
However, there is compelling evidence that the wage acceleration in L&H in recent months is not driven by employers raising base pay to attract workers, but instead by just an increase in tips stemming from restaurants filling back closer to pre-COVID capacity. Put another way, since December 2020, the rise in tip income, not an increase in base wages, can likely entirely explain the acceleration of wages for production and nonsupervisory workers in restaurants and bars. If this is the case, the wage acceleration will stop when restaurants get back to normal capacity. The evidence that the L&H wage acceleration is largely just a resurgence in tip income is as follows:
Only one in five workers are working from home due to COVID: Black and Hispanic workers are less likely to be able to telework
Key takeaways:
- At the beginning of the pandemic, we showed that not everybody can work from home, with the ability to telework differing enormously by race and ethnicity.
- As with the pre-pandemic period, there remains a large disparity between the share of Black and Hispanic workers who are able to telework during the pandemic, compared with white and Asian American and Pacific Islander (AAPI) workers.
- Specifically, only one in six Hispanic workers (15.2%) and one in five Black workers (20.4%) are able to telework due to COVID, compared with one in four white workers (25.9%) and two in five AAPI workers (39.2%).
- According to April monthly data, the disparity in teleworking across educational level still persists. About one in three workers with a bachelor’s degree or higher still teleworked as a result of COVID (33.8%), compared with about one in 20 workers with a high school degree or less (4.8%).
The COVID-19 pandemic has highlighted and exacerbated underlying disparities in the health and economic wellbeing of people across the country. Segregated cities and neighborhoods have devastated many—disproportionately Black and Hispanic communities—under the weight of the pandemic and the ensuing recession, while others have been less impacted. Some families have seen multiple family members and friends become seriously ill or lose their jobs, while others have come away relatively unscathed (and in some cases, prospered). Millions of workers have risked their health and the health of their families by going to work in-person, while others have been able to work from home and don’t regularly encounter those facing the pandemic’s wrath.
The bottom line: disparities persist between who can safely stay home and get a paycheck and who cannot.
Labor rights and civil rights: One intertwined struggle for all workers
A person working eight hours per day with a one-hour round-trip commute—who sleeps for eight hours a night—spends over half of their waking life at, going to, or coming from their workplace. Aside from children, full-time students, and those who have lived long enough to collect Social Security benefits, Americans live their lives as workers. With the exception of the roughly 10% of U.S. workers who list themselves as self-employed1 and those who make their income from capital, that work takes place as employees.
Despite how much of American adult life is governed under employment agreements, most Americans also have little say over the terms of those agreements after they have been accepted. Most American workers are employed “at will,” meaning they can be fired by their employer at the employer’s discretion as long as the given reason does not violate federal law. If a worker is made to feel uncomfortable at work by a customer, or if the pace of work becomes stressful, or if conditions of their life change such that they need special accommodation, then in most cases solutions are up to the kindness of the employer to provide—there is nothing that requires them to do so.
Entering the workplace for most American adults can in that case represent an agreement to forfeit a degree of control over their lives in exchange for the wages necessary to live. If people do not have a voice in determining the pace and content of their time in the workplace, then in a real sense they lack control over the largest portion of their lives.
The core idea behind “civil rights” is that people should have the freedom to exist in political and social equality with one another. But under employment, an individual worker has a starkly unequal relationship with their employer. For workers to exist in the workplace without forfeiting their civil rights, they must be able to bargain on equal footing with their employers—that is, they need to have the ability to organize into unions among themselves. In this sense the movement for securing labor rights is not separate from the movement for securing civil rights—it is a fulfillment of those goals.
President Biden’s budget shows what true ‘fiscal responsibility’ means: Pushing the economy closer to full employment, reducing inequality, and measuring the debt burden more accurately
The Biden administration released the president’s budget today—a proposal for tax and spending policies they would like to see become law over the next year. It includes substantial investments in traditional infrastructure, child care and early education, higher education, and elder care. It also calls for recurring cash payments to families with children. It includes money for more generous subsidies through the Affordable Care Act (ACA), substantial increases in Medicare and Medicaid coverage, and calls on Congress to undertake permanent reforms to modernize the nation’s fragmented and inadequate unemployment insurance system.
The proposal also calls on Congress to develop comprehensive legislation to strengthen and extend protections against the abusive practice of misclassifying employees as independent contractors and uses federal housing grants to incentivize inclusionary zoning practices to alleviate the nation’s housing shortage.
On the tax side, it raises taxes on realized capital gains and on corporate income, and it closes loopholes and tightens enforcement in an effort to raise revenue through greater tax compliance.
About 18 months ago, we at EPI released a blueprint for guiding fiscal policymakers. In this blueprint, we identified the main targets of fiscal policy as: ensuring high-pressure labor markets and low unemployment, reducing inequality, and then (and only then) reducing the economic obligations incurred by the public debt.
The Biden administration’s budget (particularly given the passage of the American Rescue Plan earlier this year) scores extremely high on these marks. Specifically:
Preliminary data show CEO pay jumped nearly 16% in 2020, while average worker compensation rose 1.8%
Data from large firms filing information on CEO compensation through the end of April show corporations and a strong stock market shielded CEOs from the financial impact of the pandemic.
An examination of the early filings of 281 large firms shows:
- The offer by CEOs to forgo salary increases during the pandemic was largely symbolic. Salaries were stable, but many CEOs pocketed a windfall by cashing in stock options and obtaining vested stock awards, compounding income inequalities laid bare during the past year.
- CEO compensation, including realized stock options and vested stock awards, rose 15.9% from 2019 to 2020 among early reporting firms. Growth in CEO compensation was slightly faster than last year’s strong growth—14.0% between 2018 and 2019—while the annual compensation of the average worker increased just 1.8% in 2020.
- Strong CEO compensation growth and modest growth in worker annual compensation yielded a remarkable growth in the CEO-to-worker compensation ratio, which jumped from 276.2 in 2019 to 307.3 in 2020 among early-reporting firms. In firms that retained the same CEO, the CEO-to-worker compensation ratio rose to 341.6 in 2020, up from 278.9 in 2019.
There is no justification for cutting federal unemployment benefits: The latest state jobs data show the economy has not fully recovered
Key takeaways:
- There are still nearly 10 million people actively looking for work and unable to find it. April state jobs and unemployment data released last Friday show that in many of the 24 states—led by Republican governors—that are cutting federal unemployment insurance (UI) programs, labor market conditions look similar to the national picture.
- The data likely understate the weakness of these labor markets, as labor force participation has fallen since the pre-pandemic level. And nearly all the states cutting UI still have significantly fewer jobs than before the pandemic.
- Those still filing for these benefits are the workers that need them the most, due to care responsibilities, health concerns, or other factors. Governors cutting off these key supports for these workers are not acting in the long-term best interest of any state’s workers or businesses.
Republican governors in 24 states—including Florida and Nebraska just this week—have indicated they will pull out from the federal unemployment insurance (UI) programs created at the start of the pandemic. Some states are ending participation in all federal pandemic UI programs, others only some of the federal supports. These actions are dangerously shortsighted.
UI provides a lifeline to workers unable to find suitable jobs, giving them time to find work that matches their skills and pays a decent wage. Moreover, the money provided through these entirely federally funded programs bolsters consumer demand and business activity in local economies, helping to speed the recovery. In many states, these federal UI programs are providing the bulk of all unemployment benefits to jobless workers. By cutting off these programs—which currently provide an extra $300 in weekly benefits, allow workers who have exhausted traditional UI to continue receiving benefits, and expand eligibility to workers typically not included in existing UI programs—governors are weakening their states’ potential economic growth.
Further, the most recent national jobs and unemployment data show that the country has not yet recovered from the COVID-19 recession. In April, the country was still down 8.2 million jobs from before the pandemic, and down between 9 and 11 million jobs since then if you factor in the jobs the economy should have added to keep up with growth in the working-age population over the past year.
New York included undocumented immigrants in pandemic aid, and 290,000 workers will benefit: Other states should replicate the program
Key takeaways:
- Congress and both recent presidential administrations excluded undocumented immigrants from key sources of pandemic aid: unemployment insurance and stimulus checks.
- In April, New York became the first state in the nation to give undocumented immigrants aid that approaches what others got in unemployment insurance, benefiting an estimated 92,000 people. And New York will give undocumented workers who don’t qualify for the higher level of compensation what others got in stimulus payments, benefitting an additional 199,000 people.
- It hurts all of us if any of us are left out of programs intended to get us through the recession and through a health care crisis. New York’s program could readily be replicated in other states.
This April, New York committed an unprecedented $2.1 billion of the state budget to make up for the exclusion of undocumented immigrants from federal aid during the COVID-19 pandemic.
Over a year ago, the pandemic hit New York early and brutally hard. Hospitals were full, and there were heart-wrenching backlogs in burying the dead as its limit. It quickly became clear that immigrants and people of color were disproportionately among those falling sick and dying. At the same time, the notion of “essential workers” took hold, and New Yorkers applauded the people keeping life going for the rest of us, knowing that many were immigrants, including large numbers who were undocumented. The unemployment rate spiked to 16% and was even higher for people of color and immigrants.
Yet, the first round of desperately needed federal aid very specifically excluded many immigrants. Future rounds of aid under both the Trump and Biden administrations continued to exclude undocumented individuals from expanded unemployment insurance and stimulus checks.
Illinois extended unemployment benefits to school workers in the summer, and Minnesota should follow suit
For over a decade, EPI has documented the significant pay penalty that teachers in our country’s K–12 schools suffer as a result of woeful underinvestment in public education. But it is not just teachers who have been underappreciated: Many other school staff who are essential for providing high-quality, safe, and nurturing learning environments face considerable financial challenges as a result of their decision to serve in public schools. Paraprofessionals, classroom assistants, administrative assistants, custodians, food service workers, bus drivers, and other nonlicensed staff in schools typically receive low pay and inadequate hours during the school year, and no employment from school districts over the summer months—meaning a potential loss of 10 or 11 weeks of paid employment.
In 2020, Illinois took an important step toward fixing this last issue, by making nonlicensed school staff eligible for unemployment insurance during the summer months. Illinois’s experience offers guidance for other states considering similar programs, as in Minnesota where a similar measure is currently under debate. We’ll discuss the Illinois experience later on, but first it’s useful to understand a little more about who nonlicensed school staff are and the pay they receive.
Restaurant labor shortages show little sign of going economywide: Policymakers must not rein in stimulus or unemployment benefits
Recent economic data suggest labor shortages in leisure and hospitality have popped up—but there is little reason to worry about spillover into the rest of the economy and no reason to change policy course.
Yes, last week’s jobs report was disappointing, with employment growth slowing significantly from the months before. It would be a mistake, however, to make too much of a single month’s data—the monthly jobs report data are notoriously volatile, and there are still excellent reasons to believe that coming months will see very strong job gains. Further, as disappointing as last week’s report was, there is nothing in it that demands a reorientation of the general policy stance taken by the federal government. The relief and recovery aid already passed (including the boosts to unemployment insurance) should be continued, and proposed packages (like the American Families Plan and the American Jobs Plan) should be passed.
The argument that last week’s report demands a rethink of today’s policy orientation rests on claims that it contained clear evidence of damaging labor shortages induced by either too-extensive stimulus or too-generous unemployment insurance (UI).
There is not compelling evidence of either of these. In fact, nothing in last week’s jobs report calls for a wholesale change of policy course from the federal government. The key takeaways from the data are: