WHERE DID ALL OF THE WORKERS GO?
Where did all the workers go? Some people point to March 12th, 2020 as the date that American society recognized the then-unknown virus from China as potentially dangerous. On that date, the NCAA cancelled their annual “March Madness” tournament. This was effective in communicating the seriousness of the situation to the general public. In the following weeks and months, the global economy saw historic unemployment, government-mandated stay-at-home orders, and a level of financial panic not seen in over a decade. The labor market may never again return to its pre-Covid equilibrium, forcing society to adapt to the “New Economy”. According to the Saint Louis Federal Reserve (FRED), national seasonally-adjusted unemployment reached its cyclical peak in April at 14.8%.
As medical professionals began to put a plan into action, the world slowly adapted. With people falling back into a routine that resembled the American brand of consumerism, certain segments of the economy began reopening, and some even expanding. Unemployment has steadily fallen from its April peak to 6.3% in January 2021; still well above the February 2020 level of 3.5% (FRED). In the Institute for Supply Management’s January 2021 Manufacturing report, Timothy R. Fiore, CPSM, C.P.M notes:
“The January Manufacturing PMI® registered 58.7 percent, down 1.8 percentage points from the seasonally adjusted December reading of 60.5 percent. This figure indicates expansion in the overall economy for the eighth month in a row after contraction in March, April, and May.”
While unemployment rates have dropped, employers have been seeking additional workers. For reference, the Bureau of Labor Statistics stated that in January of 2020, seasonally-adjusted total non-farm, private payrolls expanded by 255,000 jobs. In November, 359,000 jobs went unfilled. December gave back a significant portion of November’s gain, but the three month average change remained positive at 239,000 jobs. Moving ahead to February of 2021, non-farm payrolls expanded by 379,000. Inflation fell to 6.2% the same period.
What does this mean?
The data indicated that employers are adding jobs at a faster rate than unemployment is decreasing. One hypothesis explaining this is that frictional unemployment will increase as an economy adapts to using new technology. Essentially, existing worker skills are mismatched with current employer needs. Workers with outdated skills may not be able to find comparable jobs and be forced to unemployment or less-specialized work. Another hypothesis is that low-skilled workers that have been temporarily unemployed have an incentive to stay unemployed, so long that the government extends benefits.
The aim of this article is not to challenge unemployment insurance or to suggest structural changes to the economy. It is to point out the state of the labor market in its current condition.