Unemployment down but so is pace of job gains

September 4th, 2020 at 11:11 am

Payrolls were up 1.4 million in August and the unemployment rate fell sharply from 10.2 to 8.4 percent according to this morning’s labor market update from the Bureau of Labor Statistics. Payrolls remain 11.5 million below their pre-pandemic peak in February and the jobless rate is still more than twice its February rate of 3.5 percent.

In years that ends in a zero, the federal government temporarily hires many workers to field the decennial Census. It is thus important to look at private sector payrolls to get a more accurate read on underlying labor demand. Private payrolls rose 1 million in August, as temporary Census hires rose by about 240,000.

Turning back to the bigger picture, the figure below shows average monthly job gains or losses in recent months. The massive job losses that occurred in March and April came to 11 million per month. The initial bounce-back when the economy began to reopen–too soon, from the perspective of public health–in May and June added 3.8 million jobs per month. Then, as the virus re-surged, hiring downshifted in the last two months, adding 1.6 million per month. The slower the pace of job growth, the longer it will take to regain the pre-pandemic jobs’ peak. This, however, is a low bar, as the working-age population has grown over this period, implying the need to more employment than existed pre-pandemic.

A broader look at the payroll jobs situation is shown in the next table. The first line shows how many jobs were lost due to the shutdown, both for total payrolls and leaving off the government sector. These massive losses amounted to 22 and 21 million, respectively. Since then, through August, 10.6 million jobs have been regained in the overall job market, 10.5 million in the private sector. This leaves holes of about 11 million in both sectors, or gaps of slightly over 50 percent. Simply put, half the job hole still remains empty.

Source: BLS

Even with the welcomed decline in the jobless rate, this is still very clearly a job market that’s recovering, and doing so more slowly, not one that has recovered. Any claims that the U.S. job market is strong, healthy, or providing ample employment opportunities for job seekers is factually indefensible.

Racial disparities

The table below shows that Black and Brown persons have been hit harder and are recovering more slowly than whites by the downturn, a familiar pattern from past cycles. Black unemployment was 13 percent last month compared to 7 percent for whites. Employment rates for Blacks and Hispanics (working age) are down 7 percentage points compared to 5 for whites.

While the jobless rate fell, we are seeing a concerning development in unemployment: a shift within the unemployment away from temporary toward permanent job losers. Here’s how the BLS put this:

“As in the prior 3 months, the decrease in unemployment in August was driven by a decline among people on temporary layoff (-3.1 million). The decline was partially offset by an increase in the number of permanent job losers, which rose by 534,000 to 3.4 million.”

In fact, the share of the unemployed who are permanent job losers, versus those on temporary furloughs, almost tripled in recent months, from 11 to 30 percent. A related, worrisome development is the shift to longer-term unemployment: the share of job losers unemployed for for at least 15 weeks has gone from 8 percent in April to 60 percent in August.

K-shaped recovery

Another important pattern developing in the current recovery is the disparity between the experience of higher and lower income households. The stock market is up, but so are reports of hunger and evictions.

Economist Jesse Rothstein did some recent analysis of the K-shaped recovery in labor market earnings.┬áIn periods like this, wage snapshots of the type we get in today’s report are inaccurate, as disproportionate job losses for low-wage workers mean that high-wage workers are a larger share of those who still have jobs, creating an upward bias in snapshot wage trends. The figure below thus tracks pay changes for the same workers across time, assigning zero earnings to job losers and comparing post-pandemic trends to pre-pandemic trends.

Because job losses have been concentrated among low earners, their earnings declines have been much steeper than those of higher earners. The figure shows the decline in labor earnings for both groups since the pandemic compared to pre-pandemic trends (these data go through July). Real earnings fell as much as 20 percent for those in the bottom half compared to 4 percent 5 percent for top-half earners.

Source: Jesse Rothstein and my analysis of CPS data.

In sum, the failure of the Trump administration to control the virus has led to a slower pace of job gains and, while the jobless rate fell significantly last month, it is still in recessionary territory and more job seekers are at risk of longer-term unemployment. Importantly, note that this shift is occurring as Congress, particularly Senate Republicans, has dropped the ball on further fiscal relief, including enhanced UI benefits. Finally, there is evidence of a K-shaped recovery underway, as both the stock market and hunger are rising, and as earnings losses are concentrated among those in the bottom half.

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