Like An Earthquake The Pandemic Shifted Structural Unemployment

JUNE JOBS REPORT: LIKE AN EARTHQUAKE SHIFTS EARTH PLATES, THE PANDEMIC SHIFTED STRUCTURAL UNEMPLOYMENT 

by Bernard E. Anderson, Ph.D.
Professor Emeritus, Wharton School, University of Pennsylvania, and Senior Economic Advisor, National Urban League.

The addition of 850,000 jobs is the largest gain in 10 months, About 70% of positions lost in the pandemic have now been regained. Job growth was strongest in the industries that were hardest hit by the pandemic: leisure/hospitality, retail trade, public and private education.

The nation is adding jobs at a rate that is about five times as fast as the recovery from the Great Recession. That has a lot to do with the lessons we learned from that recover, most importantly that the American Recovery and Reinvestment Act was not nearly large enough. We are only beginning to see the effects of the American Rescue Plan.

However, we are seeing the same troubling pattern of racial inequality in the recovery. Before the pandemic, the Black unemployment rate was about twice the White rate. For those months, with the White unemployment rate spiking, the two rates were near parity. And then, as the economy improved, the ratio returned to where it had been.  To put the disparity into perspective, in October of 2009, during the worst of the Great Recession, the white unemployment rate was 9.5 percent.  The current unemployment rate for Black men over 20 is 10 percent. 

Nearly 9 million workers remain unemployed despite the rebound in business activity. Many employers report difficulty in finding labor to fill job vacancies, and critics blame supplementary unemployment compensation. The  evidence fails to support that view.  The federal supplement of $300 brings recipients to a little more than 40% of their prior wages, hardly a disincentive to look for work. Job searching in states that opted out of federal unemployment programs is lagging behind the national average, and consumer spending dipped somewhat after a number of states rescinded the payments.

Rather, the numbers suggest a shift in structural unemployment similar to an earthquake that shifts earth plates.  The pandemic changed our economy and workforce in fundamental ways we don't even fully understand yet, and it's unreasonable to believe we would instantly return to pre-COVID conditions, much less within the space of a few months. Meanwhile, there’s been little wage growth in low-wage industries that are rapidly recovering, and women continue to face increased child care and elder care responsibilities, which helps explain their lagged increase in labor force participation as labor demand rises in the services sector.   

Employment is expected to rise by more than 600,000 per month, or more, for the remainder of 2021.  That should steadily reduce the unemployment rate, but full employment -- about 4.5% -- is not likely mid-to late 2022 if economic growth continues unabated through the next three quarters.

Inflation spiked upward during the second quarter, mainly because of supply bottlenecks and the lag of production behind sustained consumer demand. Core inflation -- the Consumer Price Index excluding volatile food and energy prices --  rose 3.5 % and is expected to recede to the long-term average of 2.0 % by mid-2022.  Last week the Federal Open Market Committee voted to maintain low interest rates for the foreseeable future and continue to support high business liquidity by purchasing $ 120 billion per week in Treasuries and mortgage backed securities. That should support steady balanced growth as the economy continues to rise from the deep hole generated by the pandemic.