Economic Outlook: Employment Trends and Covid-19 Recovery
Employment numbers are going to be major indicator of economic recovery coming out of Covid-19. This was part of Dr. William Spriggs’s message on June 8 at the C2ER/LMI Institute (Virtual) Annual Conference Economic Outlook Keynote. The Howard University professor and chief economist of AFL-CIO believes that we are on the path to economic normalcy, but it is a long journey ahead.
March and April of 2020 saw 22 million jobs vanish as the pandemic gripped the U.S. While these jobs were lost in what seemed like the blink of an eye, they will not come back as quickly as they disappeared. After well over a year, the number of unemployed workers is still at 9.8 million translating into approximately a 6% unemployment rate.
Some theorize workers are irrational and would rather stay on unemployment than go back to work. Dr. Spriggs says that in a normally functioning economy that might be correct. However, likening the American economy to the Titanic, he claims “we hit the iceberg and we are sinking.” Adequate emergency preparation would have impeded the Titanic’s chances at breaking transatlantic crossing records, but it could have saved lives. Similarly, he posits that it is worth keeping an equivalent of extra provisions and lifeboats even if it slows us down.
Dr. Spriggs diagnoses the current employment problem as a deficiency in job matching. Many small businesses have shut down and workers were reallocated in the labor market, disrupting job networks. Contrary to the irrational worker theory, when President Trump signed the CARES Act into law, the share of unemployed workers returning to work actually increased to close to 40% from 17.5% a month prior. Therefore, it appears that the additional $600 of unemployment had no disincentive for workers to seek jobs. While Dr. Spriggs credits the rapid response of unemployment benefits with making some recovery progress, 25 governors cut benefits in December 2020.
In the months following the CARES Act, the rate at which unemployed workers flowed into employment then steadily declined. This rate has stabilized since December 2020 but is lower than what it was pre-pandemic. Last month, May 2021, the unemployment rate for white high school dropouts was 7.3%, yet the unemployment rate for black people with associates degrees was even higher at 7.7%. So, workers are actively looking for jobs, but this trend indicates that employers are not desperate to hire.
Higher unemployment and cut benefits strips demand for goods and services from the market. This inevitably leads to a decrease in consumption because consumers must stretch each dollar as they struggle to “tread water” on low income and no unemployment checks. Thus, Dr. Spriggs beckons employers to start hiring as soon as possible and for state leaders to reinstate benefits so that money circulates in the economy again. Otherwise, recovery will lag.
To learn more or revisit the presentation, a recording of the session is available to conference attendees through the Whova platform at https://whova.com/portal/webapp/ciac_202106/Agenda/1467969.