Thursday, March 25, 2021

The Pandemic and Its Impact on American Workers

There is little doubt that the government response to the COVID-19 pandemic has had a massive impact on employment in the United States.  In the Federal Reserve's most recent iteration of its Monetary Policy Report, the Fed outlines the disparities in job losses during the pandemic.


Let's start with this graphic which shows the civilian unemployment rate:


During the early stages of the pandemic in March and April of 2020, payroll unemployment plunged by 22 million jobs as shown here:


... pushing the headline unemployment rate to 14.8 percent, the highest rate since the Great Depression nearly a century ago. 


We also must keep in mind that a substantial number of American workers were put on temporary layoff and should have been counted as unemployed but who were recorded as "employed but on unpaid absence".  If the Bureau of Labor Statistics had correctly classified these workers, the unemployment rate in April 2020 would have been 5 percentage points higher, hitting 19.8 percent.  This misclassification has abated over the remainder of 2020 and, according to the Fed, the real unemployment rate is now only 0.5 percentage points lower than it should be because of the misclassification.


Nonfarm payroll employment did rise to its current level of 119.796 million over the coming months, pushing the unemployment rate back down , however at 6.3 percent in January 2021, it is still nearly 3 percentage points higher than the 3.5 percent level prior to the pandemic recession.  As well, between November 2020 and January 2021, the monthly gains in payroll averaged just 29,000 per month with the unemployment rate only declining by 0.4 percent over the three months.  This is largely because of the government-mandated lockdowns associated with the so-called "second wave".


Here is a quote from the report:


"The damage to the labor market has been even more substantial than is indicated by the extent of unemployment alone. The labor force participation rate (LFPR)—the share of the population that is either working or actively looking for work—plunged in March and April, as many of those who lost their jobs were not seeking work and so were not counted among the unemployed. Despite recovering some over the summer, the LFPR remains nearly 2 percentage points below its pre-pandemic level."


Here is a graphic showing the impact of the pandemic recession on the labor force participation rate and the employment-to-population level:

The Fed believes that there are a number of factors that have worked together to keep the labor force participation rate at its lowest level since March 1976:


Here three of the reasons for the low labor force participation rate:

1.) a lack of job opportunities


2.) the effects of school closures and virtual learning on parents' ability to work


3.) a spate of early retirements triggered by the crisis

The pandemic recession has had a significantly worse impact on employment for non-white workers as shown on this graphic:


This is largely because job losses during 2020 fell disproportionately on lower-wage workers (i.e. Hispanics, African Americans and other minority groups) as shown on this graphic:


In January 2021, employment in the lowest paying jobs was still about 20 percent below its pre-pandemic recession level compared to about 10 percent or less for higher paying jobs.


Now, let's look at the disparities in job losses during the pandemic.  Workers in certain private-sector industries have experienced far worse employment opportunities thanks to the government-mandated response to the COVID-19 pandemic, in particular, the mandate for physical and social distancing.  Here is a table showing which industries have seen the significant changes in employment both during the initial phases of the pandemic in April 2020 and, to compare, in January 2021:


This graphic shows us that in February 2021, some sectors showed improvement on a month-over-month basis but some are still suffering:

Despite what happened in February 2021, over the past year, the massive job losses in leisure and hospitality should not be a surprise; this industry was most impacted by social and physical distancing measures including government-imposed limits on capacity and the fact that these workers, for the most part, cannot work from home.


One would like to think that as the pandemic wanes, the employment situation in the United States will improve.  This is not necessarily the case for some workers as shown in this quote from the Fed report:


"In January 2021, 2.2 percent of labor force participants (representing 34.6 percent of unemployed workers) reported being unemployed because of a permanent job loss, up from 1.3 percent of the labor force (8.8 percent of unemployed workers) in April 2020.  Research has shown that workers who return to their previous employers after a temporary layoff tend to earn wages similar to what they were making previously, whereas laid-off workers who do not return to their previous employer experience a longer-lasting decline in earnings."


As the pandemic wanes, while America's beleaguered workers will see signs of improvement in their job prospects, however, it appears that some of the jobs will be permanently lost, particularly in the leisure and hospitality industries and the retail sector thanks to the permanent closures of hundreds of thousands of restaurants and retail outlets.  There is little doubt that the post-pandemic employment picture in the United States will look far different than it did at the beginning of 2020.  Even those who are able to find a new job are likely to experience a lengthy decline in earnings.




The United States is not in a unique situation when it comes to employment and the post-pandemic recession reality.  In a recent report from the Canadian Chamber of Commerce, 51.3 percent of all businesses do not know how long they will continue to be able to operate and 29.6 percent of businesses in accommodation and food services expect to reduce their number of employees as shown here:


1.) Only 38.4% of businesses expect they’ll be able to operate for 12 months or longer at current revenue levels.

2.) 51.3% of all business do not know how long they’ll be able to continue to operate at current revenue levels, with smaller businesses facing higher unknowns (52.2% for 1-4 employees; 50.9% for 5-19 employees; 49.3% for 20-99 employees; 44.2% for 100 or more employees).

3.) Nearly half (46.4%) of businesses did not know how long they could continue to operate at current levels before considering laying off staff.

4.) Close to one-third (29.6%) of businesses in accommodation and food services expect a reduction in their number of employees over the next three months.

5.) More small businesses are at their debt limit: 41.8% of businesses with 1-4 and 5-19 employees are unable to take on more debt; 29.0% for 20-99 employees; 17.1% for 100 or more employees.

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