January 05, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, January 8th at 8:30 AM Eastern Time.)
Soaring coronavirus infection rates are likely to be the main story in the employment report in December. Fear of the pandemic, coupled with new state and local restrictions, has led to a fall in restaurant reservations to levels not seen since early June. Presumably, other businesses requiring close personal contact have been similarly affected.
In addition, the looming end of the CARES Act programs, which were not extended until the end of the month, possibly led many people to cut back on spending. As a result, we are likely to see job loss in December for the first time since April, with declines in restaurant and retail employment leading the way.
We have seen a sharp upward surge in long-term unemployment (more than 26 weeks), as many of the people who were laid off during the shutdowns have not been reemployed. Long-term unemployment always rises in a downturn, but the increase in the share of long-term unemployed has been extraordinarily rapid in the Pandemic Recession.
In November, the long-term unemployed accounted for 36.9 percent of all unemployed; by contrast, in the severe recessions of 1974–75 and 1981–82, the share of long-term unemployed never rose above 26.0 percent. Typically, workers go through short spells of unemployment and either return to their former job or find a new one. In this recession, the unemployment has been concentrated among a relatively small group of workers.
The share of long-term unemployment is likely to fall in December, but that will be because many people are newly unemployed, not because the long-term unemployed have found work. Look for the number of long-term unemployed to increase further in December.
In keeping with concentrated pain incurred by the long-term unemployed, average weekly hours have not declined in this recession. In a typical recession, part of the reduced demand for labor is met by a reduction in hours rather than layoffs. At the trough of the Great Recession, the average work week was 1.5 hours shorter than the prerecession level. By contrast, the average work week was 0.5 hours longer in November than it had been a year ago.
Part of this increase is compositional, as the sectors employing the most part-time workers have been hardest hit, but we see the same story within sectors. The average work week in the leisure and hospitality sector was unchanged from its year-ago level in November, and in retail it was 0.6 hours longer.
Assuming we see more layoffs in December, it will be important to see if this is accompanied by a reduction in hours, which will soften the blow. The potential impact here is dramatic. If the average work week were cut by 1.5 hours, as in the Great Recession, this would be a 4.3 percent reduction. A drop in work hours of this size would be equivalent to 6 million jobs, meaning that for the same amount of labor demand, we would have another 6 million people working.
The fact that so much of the unemployment has been long-term, and that average hours have not dropped, means that the pain from this recession has been highly concentrated.
Jobs in Construction and Manufacturing
While large sectors of the economy are hurting due to the pandemic, construction and manufacturing, which traditionally are hard hit in a recession, are doing relatively well. We are seeing a boom in residential construction, which is offsetting weakness in the nonresidential sector. Strong car sales, coupled with purchases of appliances that often accompany home sales, have led to high demand for manufactured goods.
Construction and manufacturing both added 27,000 jobs in November. We are likely to see similar job gains in December.
State and Local Government
The state and local government sectors have already shed more than 1.3 million jobs from their pre-pandemic level. These governments continue to face serious pandemic-related budget shortfalls with little help from the federal government. We are likely to see more job loss in December.
The monthly wage growth data were hugely distorted by composition effects in the shutdown months and the immediate bounce back in July and August. However, now that we are seeing more normal rates of job growth, trends in the average hourly wage are again being driven primarily by actual wage increases rather than changes in the mix of workers.
Wages had been growing at slightly more than a 3.0 percent annual rate before the pandemic. (Growth had actually slowed just before February.) It appears as though the rate of wage growth may now be closer to 2.0 percent, given the weakness of the labor market. This pace of wage growth will be hugely important for the strength of the recovery once the pandemic has been contained.
Asian American Unemployment Rate
Typically, the unemployment rate for Asian Americans has been slightly lower than the unemployment rate for whites. In this recession it has been running somewhat higher than the white unemployment, although the gap has been closing (0.8 percentage points in November). This likely reflects a larger share of Asian Americans being employed in small businesses that have been hard hit by the pandemic. We may see this gap increase again in the December data, as the spread of the pandemic forces closing or cutbacks in many restaurants and other small businesses.
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