February Jobs Report: Modest Reopening Boosts Employment Growth

We Must Heed the Lessons of History to End the Current Crisis

by Bernard E. Anderson, Ph.D.

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

Job growth in February reflects the early response to vaccinations, which spurred increased consumer spending of unemployment compensation benefits and household income transfers provided by the federal government. Even though the economy added 379,000 jobs, total employment remains about 11 million below the pre-pandemic level, and permanent unemployment is worsening.

The large COVID relief package now working its way through Congress is necessary to contain the pandemic and restore stable, balanced economic growth. If the plan in enacted in the second quarter, economic growth in 2021 is projected at over 5% in the second half of the year, generating increased job creation across the board.

Employment grew by 355,000 in the leisure/hospitality industry, the sector that was hardest hit by the pandemic. Food and drinking place employment accounted for 81 % of the job growth, with retail trade employment, health care, and professional and business services making up the other 19%. In comparison, employment declined by 37,000 in construction, largely due to poor weather conditions in much of the country. State and local government lost 69,000 jobs, mainly because of school closings. There was little change in other major industries.

The unemployment rate dipped to 6.2 %  Both Black and white unemployment declined, but black employment grew by a little more than 200,000 while white employment remained statistically unchanged. That reflected the employment growth in leisure and hospitality which employs large numbers of low-wage Black workers. The Black unemployment rate was 5.6%, while the white rate was 5.6%

The lessons of economic history are clear:  massive government spending is necessary to deal with the current economic crisis.

The experience in the last decade demonstrates that in the midst of an economic crisis, fiscal and monetary policy must fit the scope and depth of the problem.  In response to the Great Recession,  there was too little stimulus, given the size of the problem.   

That economic collapse was generated by the financial crisis in the banking sector. By the time fiscal stimulus was adopted to address the recession, there was a major decline in household income generated by the sharp rise in unemployment.  There was a need to significantly boost household income, while reviving the banking sector through TARP.  But fiscal and monetary policies were not well coordinated, producing a long, plodding, weak recovery. It took 9 years to return business activity to the pre-financial crisis level.

The current economic collapse is not the result of the business cycle, but the result of an extraneous, exogenous, unexpected factor: the virus. Containing the virus required government restraints on economic behavior  which shut down large segments of the economy dependent upon human interaction.  The conversion of business activity to online modalities helped maintain output in many sectors but hit services – which account for 70% of the economy --  very hard.  Unemployment in that sector cascaded through other industries producing a reverse multiplier effect.  Supply chains were interrupted, generating further unemployment. The loss of income in 40% of the economy depressed aggregate demand and consumer spending  as the virus spread rapidly.

The size and scope of the pandemic-generated economic crisis requires a massive government response to contain the virus, boost household income, minimize small business insolvency due to loss of revenue and profitability, and assist state and local government to maintain essential public services, especially education.

The size and scope of the current crisis approaches what  the country faced during the Great Depression.  The difference is that at that time, economists did not have the tools to address the problem. That changed when John Maynard Keynes published his classic book, The General Theory of  Money, Interest, and Employment.  Keynesian economic analysis sets the framework for adopting public policies that will revive the private sector when the economy falls into serious disrepair.

Seventy years ago, the economy remained in depression for nearly a decade because economists did not understand how the macroeconomy operates.  The main requirement is to increase government spending.  In fact, the U.S. economy didn’t pull out of the depression until  World War II, when the government greatly increased government spending to help defeat Nazism and Fascism.  Since that time, we’ve learned  far more about, and have the fiscal and monetary tools to restore balanced growth to offset the ruinous effects of an economic crisis.      But there is no reason to delay.  The longer the workforce suffers from high unemployment, the more difficult it will be to restore balanced growth.  The experience from 2009 to 2019 should not and need not be repeated.