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Has the Pandemic Shifted the Labor Market to a New Normal?


By Michael D. Farren, Mercatus Center

The October jobs report from the Bureau of Labor Statistics finally provided some good news from the labor market, after two months of disappointing job growth. But while breathing a small sigh of relief, there’s still reason to worry about the overall labor market recovery.

First, the good news:

Most headlines will focus on the 531,000 increase in payroll jobs and the 0.2 percentage-point drop in the primary unemployment rate. This comes in addition to some other encouraging developments.

The updates to the August and September jobs numbers—which have been revised to show respective payroll jobs increases of 483,000 and 312,000—leave us in a much better position than originally reported. In addition, most of the recent unemployment decreases have come from long-term unemployed persons gaining jobs. That’s surely a relief to those workers and their families.

But we should continue to be concerned about the labor market and pay careful attention to further developments.

The more holistic employment statistics continue to show worrying signs that workers who have completely left the workforce are not returning. By my estimate, relative to pre-pandemic trends, the workforce is missing around 5.65 million workers (others put the number closer to 6 million). Even if we account for increased retirements during the pandemic, this only reduces the gap to about 4 million missing workers.

Meanwhile, there are about 1.25 jobs available for every worker counted as unemployed. That’s a lot of lost income and productivity, and it remains unclear how and when we might see it come back.

Schools are fully back in session. Effective vaccines and booster shots are widely available. The surge of the Delta variant of Covid-19 is diminishing. And, importantly, the federal expansion to unemployment insurance—which motivated workers to stay home collecting benefits that in some cases exceeded their previous paychecks—has ended. In other words, the major factors that could have been keeping workers away seem to have been addressed.

It may be time to start asking whether the pandemic has fundamentally shifted the labor market to a new normal.


Michael D. Farren is a Research Fellow at the Mercatus Center at George Mason University.