Update 530 — April Jobs Report:
What Accounts for Hiring Slowdown?
Last week’s Labor Department April jobs report showed the economy gained a net 266,000 jobs last month — much lower than expected. The surprising figure has led to debate about the efficacy and necessity of relief and reform measures.
But the problems the report revealed are more transitory than structural. The recovery is incomplete; most adjustments in the economy are temporary, while the others still call for relief. Below, we look at the key takeaways from the April jobs report, sort out the transitory from the structural, and explain why the report bolsters the case for Biden’s infrastructure package.
Good weekends all,
The April Jobs Report and What it Means
After losing 22.3 million jobs at the height of COVID, the economy has regained around two-thirds of those jobs. The pre-pandemic gap sits at around 8.2 million, not accounting for normal growth of more than 2 million jobs per year. Job growth in April underperformed expectation (the topline unemployment rate of 6.1 percent is deceptive; when accounting for people who dropped out of the workforce over the past year and population growth, the true figure is closer to 7.6 percent). But weekly jobless claims recently hit a pandemic low and labor force participation grew by 430,000, indicating the low April figure may be transitory.
Some claim unemployment insurance (UI) benefits compel people to stay out of the labor force, but any such effects, if they exist at all, are negligible. Permanent UI reform is merited so as to obviate this concern and many others, but more importantly, April’s numbers suggest the need for further relief for the care economy.
April’s job growth continued to reveal a concerning gender divide. The report’s household survey showed essentially all employment growth and more than 100% of labor force growth came from men, as 165,000 adult women dropped out of the labor force. This dropout rate is partially attributed to the pandemic’s lingering effects on the care economy, as parents staying home with children are unable to return to the labor force. It is not clear this will be a long-term trend.
The unemployment rate for workers with less than a high school degree jumped by 1.1 percent. Throughout this pandemic, workers without a college degree have borne the brunt of the job loss, with 3.6 million fewer non-college employees than at the beginning of last year. In contrast, employment for college graduates has almost fully recovered. The pandemic’s impact on low-wage workers may have longer-term effects, as the economy shifts to more contactless, if not automated, interactions.
The Consumer Price Index 12-month rolling average hit 4.2 percent for the first time since 2008, driven by price declines since last April. While this data point caused stocks to drop this week amidst inflation concerns, this may turn out to be a one- or two-month anomaly due solely to energy price fluctuation.
While the price of all other goods and services rose by a modest 2.9 percent since last April, the price of energy increased by 25 percent. This distortion is entirely due to the collapse of energy prices at the beginning of the pandemic. Adjusted to pre-pandemic energy prices, 12-month CPI would be only 3.2 percent. In contrast, hourly earnings for employees have grown by 5 percent since last March.
Unemployment Benefits and the Labor Market
The current recovery is still incomplete, and labor supply and demand are recovering at different rates in different sectors. In the past week, Republicans have pounced on the report, arguing that enhanced unemployment insurance UI benefits have incentivized people to stay out of the workforce causing labor shortages. Republicans are now calling for an end to the UI benefits, with some state governors cutting off the federal money for their citizens. Even some Democrats, including Biden, have implied a link between the weak jobs number and UI benefits.
The following factors laid out in an analysis by the Economic Policy Institute demonstrate that claims that UI benefits are causing a labor shortage are unfounded:
- Low-wage sectors saw higher job growth in April than other sectors. We would expect the opposite to occur if UI benefits were holding back the labor supply.
- The lower-than-expected net job growth is accounted for by a spike in flows out of employment, while flows into employment actually increased in April. The bigger problem was people leaving or getting laid off from their jobs, not people declining to reenter the workforce.
- Polling data suggest that millions of Americans are still hesitant to return to work due to health concerns.
The labor market in the leisure and hospitality sectors is tightening, demonstrated by a spike in jobs added and wage growth in April. But there is no evidence to suggest that this is meaningfully affecting the economy as a whole. The April report’s finding of a drop in labor force participation among adult women suggest that the continuation of school closures are forcing parents to stay home with their kids — further casting doubt on the Republican claims on UI.
One-Month Net Jobs Change, April 2021
Source: CNBC/Bureau of Labor Statistics
Cutting off UI benefits now would hurt the very families who rely on those funds most and whose inability to return to the labor force is due to legitimate reasons, not a reliance on government support. In fact, ending UI benefits would be counterproductive, since it would eliminate a significant source of consumer spending that is currently fueling strong economic growth.
Biden’s Jobs Plan
April’s lackluster job growth underscores the need for Biden’s $2.3 trillion infrastructure investment, dubbed the American Jobs Plan (AJP). Rebuilding the nation’s infrastructure would create millions of jobs — high paying jobs specifically targeting those left behind by the COVID recession and an increasingly technology-driven economy. The unemployment rate for those with a high school diploma or less, and a bachelor’s degree or more, remained in a stable band around 2.2 percentage points pre-COVID. But by May 2020, that figure rose to 8.8. Roughly 65 percent of workers with a B.A. or more teleworked during the pandemic, compared to just 22 percent of their less-educated counterparts.
Biden has made correcting this imbalance an explicit aim of the AJP. Ninety percent of the 2.7 million additional infrastructure jobs created over 10 years would not require a college degree, and three-quarters would not require a two-year associate’s degree.
The AJP and AFP, paired with a more nationally uniform approach to UI, would keep the recovery on track and build toward a more balanced and robust economy. Unemployment insurance could operate more like, well, insurance — kicking in automatically when needed, without the painful legislative and administrative delays and partisan bickering we’ve seen in recent years. Time extensions and additional relief, when needed, could be built into a formula so that the macroeconomy operates more efficiently and expectedly.
After the Hiccup
The debate will continue on what the economic relief and investment needs of the country are as the recovery continues. A short-term setback such as seen in the April jobs report does not implicate the extraordinary fiscal response of Congress to date. But it serves as a reminder that we are not out of the woods and the lifelines of support both offered and on the drawing board are the difference between a fast and fair recovery and the drawn out affair of the 2010s.