November 30, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, December 3 at 8:30 AM Eastern Time.)
With the strong job growth of the last few months and the sharp drop in the unemployment rate, we are now looking at a labor market that has largely recovered from the pandemic recession. However, it is still far from normal. Employment in the most hard-hit sectors, like restaurants, hotels, and arts and entertainment, is still far below pre-pandemic levels.
However, at this point, this seems to be more of an issue on the supply-side than the demand side. Workers are unwilling to return to low-paying jobs with bad working conditions. This is especially true with the pandemic continuing, as many workers in these sectors are both exposed to people who may be carrying the virus and also have the responsibility of enforcing rules on mask wearing and vaccines.
Who Left the Labor Force?
The labor force has fallen by 2.1 million from its 2019 average to October of this year. These are people who say they are neither working nor looking for work. It is helpful to get a simple picture of where this drop-off in labor force participation took place.
Source: Bureau of Labor Statistics.
As can be seen, the drop for men and women overall is roughly the same, at 1.5 percentage points, but there are substantial differences for some of the age categories. In the youngest grouping, ages 20–24, the 1.1 percentage point drop in the labor force participation rate (LFPR) for women is considerably larger than the 0.6 percentage point drop for men. This could be due to childcare responsibilities.
The 35–44 age group has the largest drop-off at 1.3 percentage points, with the 1.7 percentage point decline for men considerably larger than the 1.1 percentage point drop for women. In the 55–64 age group, there is a 1.3 percentage point decline for men, compared to 0.2 percentage point rise in the LFPR for women.
It is important to note that aging contributes to the overall decline in LFPR over this period. The huge baby boom cohorts are now at ages where they have relatively low LFPRs.
The other obvious factor keeping down LFPR is the pandemic, with many people staying out of the labor force because they are themselves ill, caring for a family member who is ill, or fearful of catching the virus. In the October survey, 1.3 million people reported not being in the labor force due to the pandemic. If these people returned to the labor force, and we adjusted for the aging of the population over the last two years, we would be very close to 2019 rates of labor force participation.
Are Hard Hit Sectors Adding Back Workers?
As noted, many of the sectors hardest hit by the pandemic are likely having trouble attracting workers. Restaurants, hotels, childcare, home health care, and other traditionally low-paying sectors will likely have to raise wages and improve working conditions to bring back workers. In other sectors, like air travel, the movie industry, and arts and entertainment, the biggest issue is returning to pre-pandemic consumption patterns. We will probably see more rapid job growth in these sectors in November. We may also see increases in the length of the workweek in the sectors having trouble attracting workers.
State and Local Education May Stop Shedding Workers
State and local education sectors shed a total of 65,000 jobs in October, even though employment in both sectors is still far below pre-pandemic levels and in-class instruction has resumed almost everywhere. It is likely that this is also a supply issue. Governments generally cannot easily raise wages or offer hiring bonuses to compete with private sector employers. Over time, they can arrange for needed pay increases, which may lead to a reversal in job loss in November.
Rapid Wage Growth for Lower Paid Workers Likely to Continue
The average hourly wage for production and nonsupervisory workers has risen 5.8 percent over the last year. (This category excludes most highly paid workers.) In the low-paid leisure and hospitality sector it has risen 12.4 percent. However, wage growth has slowed somewhat in the leisure and hospitality sector. The annual rate for the last three months (August, September, October) compared with the prior three months (May, June, July) was 9.7 percent. It accelerated slightly for production workers overall to 6.6 percent.
Manufacturing and Construction Likely to Have Strong Job Growth
The manufacturing sector added 60,000 jobs in October, following a gain of 31,000 in September. Construction added 44,000 jobs after adding 30,000 in September. The sectors are now down 2.1 percent and 2.0 percent, respectively, from their pre-pandemic levels. This compares to a falloff of 2.3 percent for the private sector as whole. That reverses the normal pattern where these sectors are hit hardest in a recession.
Self-Employment Is Likely to Remain High
The number of self-employed fluctuates erratically month to month, but it has been high through the year. The October figure for unincorporated self-employment was 643,000 (7.3 percent) above the 2019 average. This presumably reflects people taking advantage of the pandemic to change career paths.
Black Unemployment Should Edge Down
In the strong pre-pandemic labor market, the unemployment rate for Blacks fell to 5.2 percent in August 2019, the lowest level on record. The 4.0 percent unemployment rate for whites in October was just 1.0 percentage point above its pre-pandemic low. By contrast, the 7.9 percent rate for Blacks was 2.7 percentage points above its pre-pandemic low. It is reasonable to think that the rate for Blacks will fall further in November.
Drop in Long-Term Unemployment
Earlier this year, the share of long-term unemployed (more than 26 weeks) was at near record highs. It has fallen sharply in recent months, but at 31.6 percent in October, it was still more than 10 percentage points above its normal share. We should see further declines in November.
A Labor Market Still in Flux
While the rates of employment and unemployment we saw in October are consistent with a strong labor market, we still have a large amount of sorting taking place as workers switch jobs and employers compete to find workers. This is largely a positive picture for workers, but this sorting process will likely continue well into 2022.
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