How to Explain This Weird Job Market

The story of the labor market in 2021 should have been one of a solid, albeit incomplete, recovery. The unemployment rate fell to 4.2% in November after ending 2020 at 6.7%. The economy has gained over 555,000 jobs per month on average. Although still around four million below pre-pandemic levels, the pace of job growth has been rapid.

Instead, 2021 has been a puzzle. Since May, there have been more job offers than unemployed. Three million people still have not returned to the labor market. Resignations peaked in September, when 3% of all workers left their jobs. In September and October, hirings were 4.4%, suggesting an incredible job change rate.

What 2021 revealed was that the pandemic produced not one labor shock, but two.

The first was felt immediately when 22 million jobs were cut and the national unemployment rate jumped to almost 15%.

The second shock hit those who kept their jobs: they arguably lost their jobs before the pandemic and got a new pandemic job in its place. This job had the same employer, the same job title, probably the same salary, but it was a very different job. Maybe it was from a distance instead of in person. Or more risky. Or required new security protocols and additional responsibilities. Or demanded longer or irregular hours.

Staff at the Element St. Louis Midtown hotel in St. Louis. The hotel faced a labor shortage after it opened in late 2020.


Photo:

Neeta Satam for Wall Street for the Wall Street Journal

At the start of 2021, tens of millions of workers had eight months in their new jobs in the event of the pandemic, a job they had not applied for and had little choice. There was no guarantee that they would return to their old jobs, or that they would if they did.

Some office workers found they liked the flexibility of working from home; as companies announced plans to reopen their offices, many sought new remote positions. Teachers, meanwhile, have come out of a year of distance learning only to be caught in culture shock over Covid-19 security protocols. A remarkably high proportion of teachers are severely exhausted and consider leaving education. Healthcare workers are showing similar signs of fatigue and disillusionment. Up to half of leisure and hospitality or retail workers were laid off in the spring of 2020, so shiftworkers in those industries were sort of lucky to have a job. But it also shows how precarious these jobs are, in addition to being poorly paid.

Losing a job or suffering because of a job you don’t like can change what you want from your next job. It should come as no surprise, then, that people take time off, or that half of workers overall want a new job, and that one in three workers under the age of 40 is considering a complete career change.

A healthcare worker administers a Covid-19 test at a drive-thru clinic in Austin, Texas. Many healthcare workers are feeling fatigue and disillusionment as the pandemic continues.


Photo:

Matthew Busch / Bloomberg News

Job change

The 2021 recovery has been so confusing, in part because these two shocks are increasingly intertwined in the labor market.

For example, late summer and fall hiring data indicate that a growing share of those newly hired were people changing jobs. Indeed, as the unemployed have to compete with still-employed workers for jobs, getting a new job might become more difficult for them. Gaps in the resume can constitute a strike against a potential worker, especially if an algorithm makes the initial selection.

The sheer volume of applications can also work against the unemployed. After the last recession, researchers found that the larger the pool of available workers, the more education and experience an employer needed for a vacant position, a phenomenon they called “skills upgrading.” Today, the pool includes millions of employed and unemployed workers, so employers can be expected to make their vacancies more selective.

Employers might not care that they have any advantage at this time given the difficulty of filling positions. Employees are looking for a job in a position of economic security – their current job – so they can take their time, be more selective and demand higher pay. Retirement rates have accelerated above their pre-pandemic trend – an estimated 2.4 million more workers are retiring above what we expected from past trends.

Workers left behind, meanwhile, could still face significant constraints, such as access to child care. And Covid-19 infects over 800,000 US residents per week, the Omicron variant adding further uncertainty; all of this makes many people reluctant to take jobs with a high risk of exposure.

A classroom at Wonderspring Daycare in Narberth, Pennsylvania. The Philadelphia-area chain is understaffed and has a long waiting list for children.


Photo:

Rachel Wisniewski for The Wall Street Journal

A defeatist position

Some business leaders and policymakers seem to believe that this complex labor shortage will subside once workers start to experience financial hardship. With that in mind, around half of the governors prematurely halted improved unemployment benefits. But there was no corresponding increase in jobs in those states over the summer, or when the additional benefits ended nationally in September. Still, everyone from White House economic advisers to executives at recruiting firms continue to predict that more workers will appear once they run out of savings, which Christmas shopping should accelerate.

But this claim overlooks an important point: In the United States, the most important safety net individuals have is their own families. Parents, children, siblings and spouses extend the financial security and capabilities of any person. During the pandemic, job seekers cited their working spouses as the reason they did not seek more employment.

A restaurant dining table in Greenwich Village in New York in April. Restaurants are struggling to hire as many people are reluctant to take jobs with high risk of exposure to Covid.


Photo:

Amir Hamja / Bloomberg

As a labor policy, it also sounds defeatist. Are we really basing our economic recovery on squeezing people financially until they have to take a job? If we looked to the future, we would rather ask ourselves: what can we do to make work more attractive?

In the United States, about one in four workers in the private sector do not have paid sick leave (a daunting prospect of employment during a pandemic). In the same proportion, 20% are informed of their work schedules less than a week in advance (an intimidating prospect if you have to organize childcare). And the United States has never adopted any of the parent-focused policies that systematically increase labor market participation in other countries: the right to work part-time, paid family leave, and large subsidies for child care.

It is tempting to see 2021 as the harbinger of a permanent change in our labor market, but that would be premature. What is clear is that we will never recreate the world of December 2019. Workers are learning from the labor market experience, good or bad, and very few have been spared the double work shock of the pandemic . The job market in 2022 and beyond will reflect not only what workers have learned from their pandemic experience, but also how employers and policymakers choose to respond. Defeatist is one option, but not the only one.

Some office workers have returned. Many have chosen to stay at bay.


Photo:

Amir Hamja / Bloomberg News

Dr Edwards is an economist with Rand Corp. She can be contacted at reports@wsj.com.

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