The US job market catches the virus and crashes.

May 8th, 2020 at 10:24 am

Due to the shutting down of the American economy to control the spread of the coronavirus, the bottom fell out of the job market last month. I’ve been writing up monthly jobs reports for decades, and I’ve never seen anything remotely close to this. Employment gains that were made over almost a decade vaporized in two months.

Payrolls collapsed by 20.5 million in April, by far the worst month on record for a data series that begins in 1939. Combining March’s losses of 870,000, revised from -701K, payrolls are down by 21.4 million over the two months. This takes the level in April—131.1 million total, nonfarm jobs—down to the lowest level since February of 2011, meaning in two months, the job market shed almost a decade worth of employment gains (see figure).

In the last recession, the worst month for payroll job losses was 800,000, and the totality of jobs lost was around 9 million. In other words, we just recorded two months of jobs losses that were more than twice that of the whole of the recession formerly known as “great.”

The unemployment rate also hit an historical peak of 14.7 percent, but even that elevated value was biased down by 6 million labor force exits. If all the exiters were actively unemployed, the rate would have been 18 percent. Underemployment, a broader measure of labor market slack that includes millions of part-time workers who want full-time work, rose to a record high 22.8 percent last month, as the number of involuntary part-timers almost doubled to almost 11 million.

The reliable pattern in downturns is for African American and Hispanic conditions to deteriorate faster than that of whites. But over the past two months, the changes by race were roughly comparable (though worse for Hispanics) as shown in the table below showing how much unemployment rates have risen and employment rates have fallen since the crisis began by for workers. There are at least two explanations for this unusual, relatively equal pattern. It may be that because Black and brown workers are disproportionately in essential services, their jobless rate was slightly insulated. For example, one of the only sectors that added jobs last months was jobs in “warehouse clubs and supercenters,” which disproportionately employ non-whites, at least in non-managerial positions.

But more likely is the fact that force of the massive demand contraction is, for now, overwhelming the historical racial patterns. My strong prediction is that this will change in coming months and the usual racial disparities will resurface.

BLS does not break out underemployment by race. In a forthcoming paper with Janelle Jones, we estimate this rate, based on historical relationships. Based on that estimate, we predict black underemployment was 33 percent last month, the Hispanic rate was 32 percent and the white rate with 19 percent.

Jones and I argue that these quickly deteriorating conditions must be considered in light of the devastating, disproportionate impact of the virus on the black community, a function of the structural racism that is putting African African’s at uniquely high risk of illness and death. Brookings fellow Rashawn Ray summarizes this tragedy: “There is a saying — ‘When America catches a cold, Black people get the flu.’ Well, in 2020, when America catches coronavirus, Black people die.” Correlates of this outcome — what epidemiologists call comorbidities—include neighborhood density and safety, diminished health-care access, exposure to pollutants and more.

Even what looks like a piece of good news in today’s report is deceptive. Wages rose 4.7 percent over the month and 7.9 percent since last April, a notably higher growth rate than their previous trend of around 3 percent. But the spike occurred not because those who stayed on the job got big wage increases but because lower wage workers dropped out of the job market. Imagine a job market with three workers who earn $6, $10, and $20 per hour. The average wage is 36/3 or $12 per hour. If the $6/hour worker loses her job, the average rises to $15 per hour (30/2), a 25 percent increase. This is analogous to what happened in April.

One question today’s report begs is: what’s next? Is this the bottom of the labor market trough?

It almost surely is not. Forthcoming reports are unlikely to be this negative, but, even as some commerce is slowing coming back online, payroll numbers will likely carry a negative handle for months to come as layoffs exceed hires. Most forecasts, for what they’re worth in this unique and thus hard-to-model moment, have unemployment peaking in the third quarter of this year.

That said, one relatively hopeful number in the report is that out of 23 million unemployed, 18 million are on temporary layoff, meaning they still retain some connection to work. However, that connection will fray the longer the downturn last, yet another reason to implement for more rigorous testing and tracing than has heretofore occurred.

But for now, we’ve yet to see the bottom of this cycle. If anything positive comes out of the undeniable disaster that is this jobs report, it will be that it forces Congress to revisit the urgency they appeared to understand earlier in the crisis and quickly get back to administering the necessary economic relief. Just as critical, we need the Trump administration to finally set forth a coherent virus-control plan to get to the other side of the crisis, but I recognize that the likelihood of that occurring is diminishingly small.

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