May Jobs Report: Economy "Rising Like a Phoenix"

MAY JOBS REPORT: ECONOMY “RISING LIKE A PHOENIX”

by Dr. Bernard A. Anderson
Professor Emeritus, the Wharton School, University of Pennsylvania
Senior Economic Advisor, National Urban League

As the season moves from spring to summer, the economy is rising like a phoenix.  The pandemic is coming under control following widespread population vaccinations.  Business activity is increasing in many industries driven by federal government spending.

The U.S. economy added 559,000 in May,  following increases of 278,000 in April and 785,000 in March.  The unemployment rate declined slightly to 5.8% -- the lowest rate since the onset of the pandemic -- and  he number of unemployed adults declined to 9.3 million, nearly half a million—496,000—fewer than last month. 

While these measures are down considerably from their April 2020 highs, they remain well above the February 2020 pre-pandemic levels when unemployment stood at 3.5% and only 5.7 million adults were unemployed.  

The Biden administration $ 1.9 trillion American Rescue Plan renewed and increased unemployment compensation and cash transfer payments that were initiated in late 2020. That sustained household disposable income and consumer spending.  While many low-wage employers are quick to blame the supplemental unemployment compensation for their struggle to find workers, the problem is more complex. There is evidence that the supplementary unemployment reduced the opportunity cost of remaining out of the labor force.  But the fear of contracting the virus from indoor employment, plus child care responsibilities undoubtedly influenced the job search and employment decisions of many women. These unprecedented conditions disturbed the labor force adjustment experience observed in previous economic contractions. 

Part of the solution is for employers to raise wages in the low wage service sector.  But prematurely ending unemployment compensation, as some states are moving to do, likely would not help. Nearly 11 million workers who lost their jobs because of the pandemic remain unemployed. Premature reduction of U.C. at a time when unemployment remains high will worsen living standards for millions of workers, reduce aggregate demand, and slow the achievement of balanced economic recovery. Some  supplementary benefits included in the stimulus plans will expire in September.  There is no reason to act with unseemly speed to withdraw the income support workers need as the economy continues to recover.

While the Black unemployment rate dropped slightly to 9.1%, it remains 78% higher than the white rate of 5.1% .Black workers have long experienced a high level of structural unemployment, i.e., racial discrimination, concentration in low wage jobs, and high labor turnover which generated a persistent 2:1 unemployment disparity between Black and White workers. The pandemic exacerbated those trends as the impact fell most heavily on industries and jobs in which Black workers were heavily concentrated. During the pandemic, the labor force participation rate declined for both Black and White workers but surveys show greater difficulty among Black than White workers getting rehired as the economy and job creation slowly rebound.  Part of the disparity might be the larger loss of Black than White owned small businesses during the pandemic.

In summary, the economy is pulling out of the deep hole it was thrust into by the pandemic.  The path toward stable growth is clear and fiscal and monetary policies now in place are aimed at achieving balanced growth and economic opportunity.