An Employment Situation Checkup

On the first Friday of each month, the Bureau of Labor Statistics releases its monthly Employment Situation report. On those Friday mornings, I like to just sit with my Dunkin’ and refresh Google until the new report shows up. Why? Well, for one thing, because I am a dork. But also because the report offers a snapshot of key economic metrics, like the number of jobs in the economy and the unemployment rate. The report is also a useful tool to understand economic inequality. And, believe it or not, it has been almost a year since the initial shock of COVID hit the economy. So, it seems like a good time to do a checkup. Is the economy recovering? And, is it recovering equally? Let’s see.

How is the Big Picture Employment Situation?

To answer this first question, I am going to go full economist on you. It depends. One of the economic metrics people are most familiar with is the unemployment rate. But, to understand the unemployment rate, you first have to understand the labor force participation rate (LFP). LFP is: 1) the number of people who are working; plus 2) the number of people who are looking for work, able to work, but aren’t working (i.e., who are unemployed). The unemployment rate is the number of unemployed people divided by LFP. It’s the share of people who are looking for work, but can’t find it.

And, if you looked just at the unemployment rate, you would think things are recovering nicely. The unemployment rate peaked at 14.8 percent in April 2020. Today, it sits at 6.3 percent. The rate is still much higher than it was before COVID — when it sat at 3.5 percent — but things are improving. However, as an economist, I am contractually obligated to say something negative every single time I say something positive. This tendency may explain why I’m writing this on a Friday night…alone. Sigh.

The bad news comes when we think a bit harder about the unemployment rate. Again, it’s the share of people looking for work. If they stop looking — you know, because of a year long pandemic — then they are no longer unemployed. Instead, they end up out of the labor force entirely. And, LFP is not recovering quickly.

Figure 1. Labor Force Participation Rate (LFP), January 2020 to January 2021

Note: Includes all civilians aged 16 and over. Source: Federal Reserve Economic Data.

So, the big picture is good and bad. The unemployment rate has dropped steadily. But, LFP has stalled a full two percentage points below where it was a year ago. That number may not sound like a lot. But, the number of people who could be in the labor force is 200 million. A drop of 2 percentage points is 4 million people who used to be either looking for work or working. Not good.

How Unequal is the Employment Situation?

Of course, those people unemployed or, worse, out of the labor force entirely are not equally distributed. The usual fault lines of education, race, and ethnicity still apply. The figure below shows that the unemployment rate has increased since last year across all groups. But, unemployment rates remain excessively high among those with less education and Black and Hispanic workers. And, while Asian workers are often ignored in discussions of inequality, their unemployment rate has risen the most since pre-COVID of any group.

Figure 2. Unemployment Rates by Education, Race, and Ethnicity in January 2020 versus January 2021

Note: Numbers by education include only workers aged 25 and over. Source: Bureau of Labor Statistics.

The figure above doesn’t just highlight how inequality exists in the midst of the pandemic. The figure also highlights how much inequality existed before it. Think about it this way. In January 2021 — in the middle of a pandemic — the white unemployment rate was 5.7 percent. In January 2020, before the pandemic even struck, the Black unemployment rate was 6.1 percent. The Black unemployment rate was higher at the end of a long economic expansion than the white unemployment rate in the middle of this recession. Yeah.

This racial gap is all the more frustrating when you consider that every single person who is unemployed is actively looking for work. As a white person, I cannot imagine the frustration looking for a job and knowing that in addition to a global pandemic, I am fighting against discrimination. A few months ago, I wrote about a resume study on discrimination. That study implied that to have a 90 percent chance of getting a job interview, a white person would need to apply to 22 jobs. A Black person would need to apply to 34. When you think about reasons why these unemployment gap exists, you don’t need to think further than that. Recession or no recession, we need to do better.

What’s Next

As you can tell, when I look at the Employment Situation, I tend to look at it in terms of numbers. But, those numbers represent people’s lives. Today, due to unemployment and outright labor force exit, a full 6.5 million fewer people are working than were a year ago. None of these people are lazy or undeserving of help. The thing that threw them out of work was as random as these things come.

To this end, the Biden Administration has proposed a 1.9 trillion dollar spending plan. I tend towards some elements of the plan more than others. On the “love it less side” is the idea of $1,400 checks for everyone under a certain income threshold. To me, such payments are speedy — which is good — but also poorly targeted. I would rather see the money target people who actually lost their jobs during the pandemic (even if they have since got those jobs back). And, surely the government has this information, since those who have already benefitted from extended unemployment insurance have been documented by their states of residence.

On the “love it more side” are $400 unemployment insurance supplements, which target those people still lacking jobs. And, I also love the proposal to increase the federal minimum wage to $15 an hour…although I do have some concerns about job loss. Recent research has shown that an increase in the minimum wage of 1 percent decreases employment by 0.116 percent for those affected — not huge, but not trivial for those that do lose work. Since an increase to $15 an hour represents a doubling of the minimum wage in some places (e.g., Alabama), policymakers may need to be more discerning. Still, the Federal Minimum Wage has been stagnant for far too long, and it’s time to think about raising it. After all, recent research also shows that increasing the minimum wage has spillovers to higher paid workers, who gain bargaining leverage that has been lost in recent decades.

And finally, on the “it better damn well be done equally side,” is 160 billion for a national vaccination program. Obviously, spending on vaccinations is a great idea. But, vaccination programs so far are favoring white, high-income people. Our society has already asked Black, Hispanic, and lower-income Americans to bear the economic and health effects of this pandemic. If we put these folks in the back of the line for vaccinations, we may need to take an even harder look in the mirror than events of the past few months would suggest.

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