The Labor Market Recovery is Stalling

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Twenty-million jobs were lost in April due to the shutdown, representing 20 years of job gains. There was a solid recovery early this summer, with 2.7 million jobs created in May and 4.8 million jobs created in June. However, the rate of job creation has steadily declined since then, so that only 245,000 jobs were created in November.

Currently, 10 million fewer people are working than in February 2020. At November’s rate of job creation, the jobs lost won’t be regained until mid-2024. This assumes the rate of job creation does not continue to fall. If so, then fewer than 100,000 jobs will have been created in December, meaning it will take more than a decade to regain all of the lost jobs.

Each Thursday, the U.S. Training and Employment Administration releases data on the number of people filing for unemployment for the first time. Nearly 7 million Americans filed for unemployment benefits in the last week of March of this year. This is ten times the rate of unemployment filings seen at the worst part of the Great Recession ten years ago, when 661,000 people filed for benefits in the last week of March 2009. The rate of unemployment filings quickly declined to about 750,000 per week this summer following the strong job gains. However, this means that every week this year since the end of March, more people filed for unemployment than during the Great Recession. More troubling is that the initial unemployment filings increased to 853,000 in the second week of December.

The civilian labor force provides one more piece of troubling data. The labor force is defined as people who are either working or actively looking for work. “Actively looking for work” is key because an out-of-work worker must be actively looking for a job to be counted as unemployed. If a worker gives up looking for work, he/she is considered to be out of the labor force and thus not part of the unemployment rate. There were about 165 million people in the labor force in February. About 9 million workers exited the labor force in April due to the shutdown and only about 4 million have returned. Thus, 5 million people who were working before April have exited the labor force, and thus are no longer counted as unemployed. If they were, the unemployment rate would be closer to 10%, not 6.7%. The unemployment rate declined from 6.9% to 6.7% in November because 400,000 workers exited the labor force and stopped being counted as unemployed.

The reason why the labor market recovery is stalling is that the shutdowns that were eased in the summer are being reinstated. Businesses have depleted their cash reserves, and many will have a difficult time riding out the second wave of shutdowns and will fail, turning temporary unemployment into long-term unemployment and further slowing the stalled recovery.

 

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