May Jobs Report: White Unemployment Declined, Black Joblessness & Economic Racial Disparity Continues to Soar

DEFYING FORECASTS, WHITE UNEMPLOYMENT DECLINED IN MAY
Black Joblessness & Economic Racial Disparity Continues to Soar

The May Jobs Report is a shocker.

Contrary to most economists’ forecasts, employment grew  by 2.51 million last month, and the unemployment rate declined to 13.3%.  Not one of the 100 economic forecasters regularly surveyed by the Wall Street Journal anticipated a rise in employment in May, and most projected a 20% unemployment rate.

The Black unemployment rate, however, jumped to 16.8% while the white rate fell to 12.4.

This stark disparity reflects the worsening status of Black workers in the midst of the employment turbulence.

Partial business re-openings – many in conflict with the federal government’s guidelines on COVID-19 precautions --  drove the employment bounce.

The employment bounce was concentrated in industries that were hardest hit by the lockdowns and social distancing imposed in March to contain COVID-19: leisure and hospitality and retail trade. Most of the job gains reflected workers recalled from temporary layoff.

The bounce was fueled by the injection of $2 trillion into the economy to bolster household and business income, as part of the federal government’s response to the pandemic-induced economic collapse. The question is whether the short-term bump is the end of the mini-recession  and a harbinger of longer -erm growth.  Layoffs continue in many industries, especially government. Education showed one of the largest layoff reports last month.

Unemployment insurance payments, supplemented by federal government wage benefits, partially stabilized consumer spending. But consumer confidence, the driver of consumer spending remains low because of uncertainty about future job prospects. Furthermore, many workers face the loss of unemployment compensation if they refuse to return to work for fear of coronavirus infection.

Many laid off workers won’t be called back soon. Several major retailers, including Neiman Marcus, J.Crew, and others have filed for bankruptcy and other businesses plan to permanently close stores.  If consumer spending remains subpar, more layoffs are likely at factories. Several airlines who received loans through the Paycheck Protection Program have warned employees on paid leave that they might be cut this fall because recovery of travel will face a long lag.

In economics, this is called “hysteresis”, a temporary loss that becomes permanent even after the shock that caused the initial loss disappears.

Layoffs and the looming end to unemployment compensation  – and especially the racial disparity in the unemployment rate – show that now is not the time to pull back on fiscal policy.

                                                                             

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Racial Disparity in the Labor Market

The sharp rise in unemployment among all population groups over the last three months led some to downplay the disproportionate impact of the crisis on Black workers. For example: in April, white employment declined by 14%, and Black by15.4 %.  The number of unemployed doubled for both groups, and both saw a 10-percentage point rise in their unemployment rate.

But the appearance of equity is an anomaly rooted in the measurement of unemployment.  The unemployment rate is a partial measure of joblessness. It excludes those who  dropped out of the labor force.  That is reflected in the labor force participation rate, and the employment/population ratio.

Black workers tend to drop out of the labor force quicker than white workers, especially at times of rapidly rising layoffs. Based on their long-term difficulties in the labor market, they are, on average, less confident that they’ll find another job at their reservation wage after being laid off.  In April, the labor force participation rate for white workers declined 2.4 percentage points; for Black workers, 3.4 percentage points.  The flip side of the coin is the employment/population ratio, which declined 8.4 percentage points for white workers and 9.0 percentage points for Black workers  

Another view of racial disparity is seen in the impact of COVID-19 social distancing and lockdowns on the two groups. The government mandated measures delivered the hardest blow on industries which employ a disproportionate number of Black workers, especially Black women: leisure hospitality, and direct service, and minimum wage hourly workers. Those occupational groups were harder hit than white collar, salaried workers , many of whom shifted to work-at-home schedules.  

A twist on the occupational ladder showed a disproportionate number of Black workers, mainly women, in “essential” but low-level health care jobs in hospitals and nursing homes where they are at high risk of contracting the virus.   That helps explain the disproportionate racial disparity in death from the virus.

When these factors are considered, the reasonable conclusion is that the crisis exacerbated racial labor market disparities.  Racial disparity is not revealed in a single number. One must dig deeper into labor market statistics to see the full picture of racial disparity.