The ongoing coronavirus pandemic and consequent derailment of the U.S. economy is historic on several levels, including what exactly will be required for the job market to recover.
“In all the progress that we've made, we're still slightly worse off than we were at the worst point in the Great Recession,” Ernie Tedeschi, a managing director, and policy economist for Evercore ISI, told Yahoo Money, noting that overall employment is further from its peak than at any time during the Great Recession. “Which is extraordinary.”
Around 9.8 million jobs — about half of the number lost — have yet to be regained in the coronavirus pandemic-induced recession and the labor participation rate remains at 61.5%, much lower than in February 2020.
And while mending the underlying public health crisis that is driving the downturn could lead to a quicker recovery, scarring effects on the economy and labor market could worsen until that happens.
“The early part of the recovery — the first couple of months after April — that was the low-hanging fruit,” Tedeschi said. “Now we're in the hard part of the recovery, where we're not going to see giant gains on par with what we saw in May and June.”
The Great Recession was followed by one of the longest job market recoveries, taking more than six years to return to pre-recession levels. If the recovery continues with its November-to-December pace, it could take more than three years to get to pre-pandemic levels, according to estimates by Tedeschi, but there are indications that the recovery pace going forward may be slower.
‘The longer they will remain unemployed’
And while the decline in unemployment in the months after April was historically very rapid, many of the jobs added in those months were for people on temporary layoff who were recalled. Those added jobs didn’t represent new job growth.
“It's not just about the number of jobs, it's also about the type of jobs and the nature of the job losses,” Gregory Daco, chief U.S. economist at Oxford Economics told Yahoo Money. “Initially, a lot of the job losses were considered to be temporary job losses, but they've increasingly turned into permanent job losses.”
As of December, 3.4 million of the layoffs were permanent, down from its 3.7 million November peak. Before that, permanent layoffs had been consistently rising during the pandemic. They remain elevated, however, about 2 million more than in February.
“The longer a worker is unemployed, the longer they will remain unemployed going forward,” Tedeschi said.
Many of the lost jobs are in the leisure and hospitality sector, accounting for close to 4 million of all losses as of December. The sector is unlikely to recover until the pandemic is under control. Higher-paying industries like manufacturing haven’t been hit as hard in the pandemic, a departure from other recessions.
“Some of those job losses or because of business closures,” Tedeschi said, “so it becomes even harder to get that sector back.”
‘The unemployment rate implicitly is larger’
The labor force participation rate has also fallen dramatically during the pandemic, currently at 61.5%, down from 63.3% in February. The decline reflects the number of people leaving the labor force and not looking for a job, but it’s not captured by the unemployment rate.
“If you factor in the fact that the labor force is now smaller,” Daco said, “the unemployment rate implicitly is larger.”
Workers are exiting the labor force for a variety of reasons, such as taking care of family members during the pandemic as well as weaker demand in the economy due to pandemic. Women have been particularly hurt, with their participation rate at 55.9% — the same level as 1987.
In previous recessions, the labor force participation rate usually takes longer to recover than the unemployment rate. This time, though, the recovery may be faster due to the nature of departures.
For instance, if the pandemic comes under control and schools reopen, a large number of the 1.5 million mothers who are out of the labor force may come back, according to Tedeschi.
“We hope that things might be a little faster this time,” he said. “I'm hopeful, but cautious too, because our historical experience has been that it takes years for labor force participation to heal.”