January Jobs Report: Surging Employment Not Enough to Reduce Racial Gaps and Pandemic-Induced Barriers to Work

Dr. Bernard E. Anderson
Whitney M Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania
Senior Economic Advisor, National Urban League

Despite the ongoing struggle to beat back the COVID-19 pandemic and continuing bottlenecks in the production materials supply chain, the economy added an unexpectedly-high 467,000 jobs in January.

The unemployment rate slipped up to 4%, indicating that the labor market remains fully employed.  The labor force participation rate rose 0.3 points to 62.2% in response to the strong job creation.

However, the strong demand for labor and tight labor market has done little to reduce racial employment disparities.  While employment rose among Black and white workers in January, the Black/white unemployment gap widened to the persistent 2:1 ratio: 2.02.

Employment grew in a number of major industries – 150,000 in leisure and hospitality, 686,000 in professional and business services, 61,000 in retail trade, and 54,000 in  transportation and warehousing. But due to supply chain bottlenecks employment growth was tepid in manufacturing with only 13,000 jobs added; the construction industry lost 5,000 jobs.

While the labor market has bounced back since  Covid 19 struck in early 2020, total employment remains 2.9 million below the pre-pandemic level.   Thousands of workers, especially low-wage women, remain unable to work because of high child care costs, school closings, and fear of contracting the virus.

This reflects the urgency of enacting the Build Back Better agenda, which will provide  access to affordable child care assistance and more Covid 19 remedial measures. That will help increase the labor force participation rate and boost economic growth.  Acceleration of the implementation of the Infrastructure Investment and Jobs Act will ease supply chain bottlenecks and contribute to reducing inflation.

Furthermore, stepped-up enforcement of equal job opportunity policies will eliminate the racial employment gap, contribute to stable, balanced economic growth, and leave no group behind as the economy continues to pull out of the pandemic. The path and pace of economic activity depends on the percentage of population vaccinated and the effectiveness of vaccinations.

Looking ahead, inflation remains a serious threat, posing a threat to stable balanced growth.  Consumer prices are rising because of continuing supply chain bottlenecks coupled with the high level of aggregate demand.  Aggregate demand is sustained by increased employment and wage growth.  The shortage of intermediate materials raises their prices and business  production costs which are passed onto consumers as firms strive to maintain and maximize profits.

To tamp down inflation, the Federal Reserve reversed the policy of accommodation that was adopted in early 2020 when COVID-19 struck.  The Fed is steadily reducing Treasury and mortgage-backed security purchases, a process that will end in March.  The Fed announced that when asset purchases end, interest rates will be raised.  The number and size of interest rate increases will depend upon how the economy and inflation respond to the pull back in accommodation.

The Federal Reserve is guided by the dual mandate to manage monetary policy aimed at achieving price stability and maximum employment.  Policymakers are concerned about the impact of inflation on the population, especially the differential impact on different population groups.  Inflation reduces the quality of life and has a greater impact on families living on fixed income and low-income families that spend a large part of their income on necessities.  Inflation also constrains the achievement of stable balanced economic growth.

The consensus of economic forecasters is 5.6% economic growth in 2022. Growth should be stronger in the first than the second half.  Labor shortages are expected to continue, but ease as the year goes on.  The outcome will depend in part on growth in the labor force participation rate, which in turn will depend on progress in containing the spread of the virus. The labor market is expected to remain at full employment.