The US economy and labor market are experiencing a very unusual recession. As the fallout from Covid-19 continues, here are the biggest trends involving the US job market.
1. After a summer hiring sprint, job gains are slowing Between February and April, more than 22 million jobs were lost. Between May and August, 52 percent of lost jobs were recovered. But September and October data suggest the revival is slowing. US employment is still 11 million below pre-pandemic level. The unemployment rate dropped to 7.9 percent in September.
2. It is still difficult to find qualified workers In this recession, the labor market has not behaved as it usually does when unemployment is very high. Instead, finding qualified workers is difficult, quits rate are high, and it is less difficult to find a job. There are reasons for the disconnect. High unemployment typically means many job seekers per job opening. In this crisis, that has not been the case. Many people listed as unemployed are not actively or seriously looking for a job. Why? Three reasons: Many people counted as unemployed are furloughed and expect to regain their jobs. Two, and unique to the pandemic, some workers have been receiving large unemployment benefits. Given the risks of infection and the lack of childcare, these workers are less desperate to get back to work. Three, the large unemployment benefits that may have reduced the incentive of unemployed workers to get back to work. So, while the number of unemployed workers is historically high, the share of unemployed seeking employment is much smaller than usual.
3. People are leaving the labor force The drop in labor force participation is larger for women than for men, partly because of the childcare crisis. In addition, the labor force participation of the 65+ group seems to have significantly dropped during Covid-19, after more than 20 years of continuous increase. In this recession, retirement preparedness was not significantly harmed by drops in home and stock prices as in the Great Recession of 2008-09. The pandemic recession has not spurred delayed retirements. Further, the Covid-19 risk for older people may have led some to retirement because of concerns about getting infected.
4. Goods and services have switched places In most recessions, consumption of goods collapses while consumption of services barely drops. This time, the opposite is true. Most job losses were in service industries hurt by social distancing: entertainment, travel, lodging, full-service restaurants, elective healthcare, and childcare. On the other hand, spending on goods is booming, especially in leisure-related goods. As a result, employment growth is better than average in industries related to the production, transportation, storage, and selling of goods. Retail is an exception, as some retail industries experienced a large employment drop associated with an accelerated shift to online shopping.
5. A k-shaped recovery is playing out in labor metrics Workers who are young, female, belong to a minority group, and/or have less education have been disproportionally affected by job losses, because they are more concentrated in harder-hit industries. As a result, these workers are experiencing a larger increase in unemployment rates.
6. Salary cuts and wage bifurcation are likely to continue Many employers have already started to lower their salary increase budgets. As in every recession, new hires, especially new labor market entrants, are likely to experience a larger wage drop than existing, more experienced workers.
7. Remote work is now en vogue After eight months, the perception among most employers is that remote work does not negatively affect workers’ productivity, and perhaps even improves it. As a result, a growing share of employers is expecting a permanent shift to remote work and is willing to hire 100 percent virtual workers anywhere in, and even outside, the US. The permanent rise in remote work is, so far, the biggest economic legacy of Covid-19.
8. City centers are in deep recession Because of the pandemic, fewer people come to work and spend money in city centers. The drop in US hiring since the beginning of the pandemic occurred in the principal cities of large metro areas. Outside these city centers, hiring activity is now above pre-pandemic levels. The city center recession continues and will likely have long-term implications for business geography.
9. The coasts shouldered the brunt of job cuts Pandemic job losses were bigger in the Northeast and Pacific regions, where the spread of the virus occurred earlier, and state-mandated social distancing measures were more restrictive.
10. Large metro areas and vacation destinations were hardest hit Job losses were bigger in vacation destinations, where hard hit industries such as travel, lodging, and dining are a large share of the economy, and in major metro areas.
The US economic growth and jobs revivals would continue to decelerate in the coming months as Covid-19 cases increase, layoff rates remain high, and fading government stimulus limits the spending capacity of many households.
As for 2021, much depends on how quickly the Covid-19 crisis resolves. In an optimistic scenario, the virus would be neutralized (through deliberate scientific advances such as a reliable vaccine or effective treatments) during the year, leading to a strong recovery in the industries most affected by the pandemic, and to a drop in the unemployment rate. But that optimistic scenario is far from assured. Businesses should buckle in and prepare for a bumpy 2021.