What to watch on jobs day: The giant job deficit left by the pandemic
On Friday, the Bureau of Labor Statistics (BLS) will release its latest jobs report on the state of the labor market for January 2021. The pandemic recession has caused immense damage to the health and economic well-being of millions of people for over 10 months. The economic pain easily extends to nearly 27 million workers in the economy today, and that doesn’t include those who had lost their jobs and regained employment but got behind on their bills or those who lost loved ones and providers to illness. It is imperative that policymakers act now at the scale of the problem.
Now that the economic losses have dragged on for this long, it’s important to consider the job deficit in light of an appropriate counterfactual. The employment losses in March and April totaled 22.2 million, while the economy gained 12.5 million jobs between May and November. In the figure below, note the significant slow down in job growth in each successive month since June. Then, in December, the U.S. economy experienced a loss of 140,000 jobs. Given low actual seasonal hiring in the pandemic, seasonal adjustments made the December numbers look worse than they really were and will make the January numbers look better than they were. The average job change in December and January will provide a better sense of current labor market momentum. Setting that issue aside, it’s clear that the labor market was down 9.8 million jobs between February and December.
At this rate of job growth, the economy is years away from a full recovery: Monthly change in payroll employment, January 2020–January 2021
|Date||Change in Employment|
Source: EPI analysis of Bureau of Labor Statistics' Current Employment Statistics public data series
On Friday, the BLS will also publish the latest benchmark revisions to the Current Employment Statistics, which pegs payroll employment to comprehensive counts of state unemployment insurance records. The preliminary benchmark revisions indicated that there were 173,000 fewer jobs in March 2020 than originally reported. Once those revisions are factored in, the labor market in December is 9.9 million jobs short of its February level. (Be warned, rounding is doing a lot of work here: the change is from 9.839 million to 9.853.)
That simple subtraction from February to December is one way to measure the jobs shortfall. A more appropriate counterfactual would be to compare jobs today to how many would have been created if the labor market hadn’t tanked in the spring. There are two appealing measurement options. The first is to project employment growth from the pre-pandemic period. The second is to project out jobs to keep up with working-age population growth. Using prior employment growth, we could project forward using the average monthly job growth in the three months prior to the recession (202,000), six months prior (203,000), or twelve months prior (181,000). All are defensible, but let’s go with the lowest value. At 181,000 jobs per month, the labor market would’ve added another 1,810,000 jobs since February. That would give us a jobs deficit of 11.7 million (the 9.9 million fewer jobs we have than we had in February, plus the 1.8 million jobs we would have added over that period if the recession hadn’t occurred).
The second counterfactual grows payroll employment by the growth of the population ages 16 and older. Applying this growth rate of 0.62% to payroll employment in February yields an expected increase in 940,000 jobs just to keep up with population growth. Adding this alternative scenario to the job losses realized generates a 10.8 million job shortfall since February. However it’s measured, the U.S. labor market is facing an enormous jobs deficit.
The economic picture is even more devastating when we consider the fact that low wage sectors were hit the worst in the pandemic recession. The chart below shows the jobs shortfall by sector. Leisure and hospitality workers were hit the hardest and have continued to bear the brunt of the recession, showing a 3.9 million job shortfall since February. In addition, leisure and hospitality workers have the lowest wages, on average, of all the major sectors and therefore one of the reasons that raising the minimum wage is essential to these workers and getting the economy back on track. When there are lots of sidelined workers, employers have the power to suppress wages even further because workers have especially low bargaining power. Raising the minimum wage helps restore some bargaining power back to workers. And, it would lift wages for an estimated 32 million workers and help narrow racial and gender pay gaps as well as reduce poverty. Further, raising the minimum wage directly aids the demand shortfall because providing low-wage workers with money can provide a modest but important boost to spending and therefore the recovery.
Employment change by industry since February 2020: All employees (thousands), seasonally adjusted, January 2021
|Industry||Employment change since February 2020|
|Leisure and hospitality||-3880|
|Education and health services||-1325|
|Professional and business services||-825|
|Transportation and warehousing||-163.7|
|Mining and logging||-81|
Source: Bureau of Labor Statistics' (BLS) Current Employment Statistics, Establishment Survey (CES) public data series.
Government employment is facing the second largest deficit at 1.3 million jobs lost since February. While federal employment rose and fell with the 2020 Census collection, it netted 41,000 jobs between February and December. State and local employment are facing a 1.4 million job shortfall with losses in excess of 1 million jobs in state and local education employment. Because of the economic crises, states and localities are facing huge revenue shortfalls, which could be relieved with more federal aid. What we know from the last recession is that states that preserved or grew their public-sector workforce fared better, with fewer job losses overall, fewer private-sector job cuts, less growth in unemployment, and faster job growth. Without significant federal investment, it will be impossible for state and local governments to withstand the current economic disaster and return to their pre-pandemic employment levels in the near future.
Another key measure to watch in the upcoming jobs report is the duration of unemployment. Over the last several months we’ve seen a significant uptick in long-term unemployment (which is defined as an unemployment duration of 27 weeks or more). The figure below illustrates the number of unemployed workers by duration of unemployment: less than five weeks, 5–14 weeks, 15–26 weeks, and 27 or more weeks.
Workers are experiencing longer and longer periods of unemployment: Number of workers at each level of unemployment duration, by month, February 2020–January 2021
|Date||Less than 5 weeks||5–14 weeks||15–26 Weeks||27 weeks and over|
Note: Data are seasonally adjusted.
Source: EPI analysis of Bureau of Labor Statistics Current Population Survey public data series.
When the job losses spiked in April, the vast majority of the unemployed had been unemployed less than five weeks—not surprising since millions of workers were laid off in a single month. As the recession has dragged on, the share of the unemployed with longer unemployment durations has ballooned. By May, the vast majority had been unemployed for over five weeks, and by August, most had been unemployed for over 15 weeks. Since October, about one-third of the unemployed were unemployed for 27 weeks or longer. Even as the unemployment level appears to have stabilized for now, nearly 4 million unemployed workers have been unemployed for at least 27 weeks. And, as bad as these numbers are, they understate the economic pain. These counts of the unemployed do not take into account the millions of workers who have left the labor force or were misclassified as employed but not at work or had their hours cut. Only those counted as unemployed can be classified by duration. This proves essential the need for extensions to unemployment insurance to provide a necessary lifeline to those workers and their families.
When we think about the unemployed and the pandemic recession, we must always consider for whom were jobs lost and for whom are the jobs returning. The figure below shows unemployment over the last year by race and ethnicity. What’s been well documented is that Black and Hispanic workers have borne the brunt of both the pandemic and the recession itself. Unemployment shot up for all workers, but Hispanic workers spiked the highest, hitting 18.9% in April. As of December, Black workers still have an unemployment rate nearly as high as the overall peak unemployment rate in the Great Recession (9.9% versus 10.0%). And, the pandemic recession magnified the disparities in the pre-pandemic economy. Remember when many were celebrating the progress in lowering the Black unemployment rate in late 2019 and early 2020? Now, the white unemployment rate is down to those same levels, and no one would say the economy is working for them today. We have to get back to the pre-pandemic economy and fix the stark disparities that characterized that unequal labor market. Policymakers must act now at the scale of the crisis if there’s any hope for a swifter and more broad-based recovery.
Unemployment rate of workers age 16 and older by race and ethnicity, January 2020–January 2021
Source: Bureau of Labor Statistics' Current Population Survey, public data series