“Chaos, Conflict and Coronavirus: How Will the Labor Market Respond?”
By Michael D. Farren, courtesy of the Mercatus Center
Against the backdrop of a nation in turmoil, the Bureau of Labor Statistics on Jan. 8 reported the first decrease in jobs since the headlong plunge in employment at the beginning of the pandemic. The monthly report estimated that, on net, 140,000 payroll jobs were lost between mid-November and mid-December. While the job losses are discouraging, the news wasn’t unexpected.
By mid-December many potential consumers were already avoiding public places to reduce their exposure to the resurging coronavirus, and states and cities were reimposing business restrictions and stay-at-home orders. These restrictions are being tightened or extended as coronavirus infections continue to trend upward.
Last week’s political tumult overshadowed the news that the U.S. momentarily crossed the threshold of 4,000 daily deaths from COVID-19. Meanwhile, some epidemiologists expect to see a surge in infections in January arising from December’s holiday travel and social gatherings. Even worse, a new, substantially more infectious variant of the coronavirus is now spreading in the U.S.
Taken together, this information suggests that the labor market may continue to shed jobs as households lean more into a “bunker mentality”—avoiding shopping and spending—while governments impose more restrictions on businesses, reducing their demand for workers.
We Desperately Need Some Good News
Despite the doom and gloom, there are multiple reasons to be optimistic. First, while the economy lost 140,000 jobs last month, this is only an estimate of the net change. Diving deeper into what happened in individual industries provides a more reassuring picture. The overall result is driven by a 498,000 decrease in leisure and hospitality employment—much of which is attributable to food-service workers being furloughed as their employers respond to government-imposed restrictions, such as banning onsite dining.
This decline obscures large employment increases in most other industries, including manufacturing (38,000), transportation and warehousing (46,600), construction (51,000), retail (120,500), and professional and business services (161,000). We can expect that most of the jobs lost in leisure and hospitality will return when the coronavirus abates, just as they did following the initial waves of the pandemic.
Furthermore, the October and November payroll employment estimates were revised upward by a total of 135,000 jobs. This means that, while the labor market did lose 140,000 jobs between mid-November and mid-December, the relative loss was only 5,000 jobs compared to the total employment level we had previously thought existed.
More good news is seen in the BLS estimates of the unemployment rate, labor force participation rate and employment-to-population ratio, which were all unchanged from November. This suggests the labor market is steadier than the net loss of payroll jobs would indicate. The apparent discrepancy arises because the data used to estimate total payroll employment is taken from a monthly survey of business establishments, while the unemployment rate, labor force participation rate and employment-population ratio are estimated from a monthly survey of households. The difference in data sources means that the household survey can collect information on self-employed workers, such as independent contractors or off-the-books laborers, that the business survey is unlikely to capture.
In other words, if unemployed workers have taken freelance jobs to make ends meet, then their newly employed status would not be included in the estimate of total payroll jobs, even though it would be reflected in a reduced unemployment rate. It’s hard to know how much this effect is driving the difference between the BLS statistics, but it seems likely to be contributing to it. Research released by freelance job platform Upwork in September reports that 12% of the U.S. workforce started freelancing after the pandemic, and that the number of freelancers rose from a pre-pandemic plateau of 57 million to 59 million during the summer of 2020.
Third, the recent coronavirus relief bill passed by Congress is providing a much-needed respite for the workers hit hard by the pandemic. Although the extension of unemployment insurance lasts only through mid-March, President-elect Biden supports another relief package that would further extend unemployment insurance and provide additional individual stimulus checks. While I agree with my colleague Veronique de Rugy that poorly targeted stimulus checks—given both to those still working as well as those whose jobs have been disrupted by the pandemic—is bad policy, at least the additional support would help struggling households weather the winter. It would also serve as a stimulus for consumer spending that would help maintain demand for retail jobs.
First Doses First
Lastly, Biden has announced that his administration will adopt the “First Dose First” approach toward coronavirus vaccination advocated by Mercatus Center and George Mason University economists Alex Tabbarok and Tyler Cowen, among others. This approach would nearly double the number of people who could be quickly vaccinated by giving everyone just the first of two vaccine doses. The idea is based on research that shows substantial COVID-19 resistance is provided by the first dose alone. Perhaps the limited vaccine supply could be stretched even further if fractional doses are discovered to be sufficiently effective.
The arguments that these approaches could reduce vaccine effectiveness for individuals ignore the fact that the primary goal right now is to stop the virus’s spread through the population. After all, vaccinating two people to give them each 80% resistance to COVID-19 is more effective at stopping community transmission than providing one person with 95% resistance. Denying the virus additional opportunities to mutate and extend the pandemic is also critically important. Epidemiologists believe the more transmissible virus strains recently identified in the U.K. and South Africa will likely be curbed by the current vaccines, or else by vaccine adaptations, but it would be a bad idea to give the coronavirus more opportunities than necessary to extend the pandemic.
Despite the pervading sense that 2021 is just a continuation of a terrible 2020, my advice remains the same as last month. Additional income assistance is now arriving for unemployed workers, and we likely just need to hang on until widespread vaccinations reduces COVID-19 transmission to a more manageable—or, we hope, negligible—level. The economy is poised to recover much more quickly than it did from the Great Recession. We just need to get to spring.
Michael D. Farren is a Research Fellow at the Mercatus Center at George Mason University. His research focuses on the effects of government favoritism toward particular businesses, industries, and occupations, specializing in labor, economic development, and transportation issues.