The economy is bouncing back strongly, but jobs are lagging behind.
Economists say economic output has returned to its pre-pandemic level, yet the U.S. has 7 million fewer people working than it did in early 2020.
Even as businesses have been allowed to fully reopen in most of the country, the pace of hiring hasn’t picked up much. Job creation in both April and May fell short of economists’ forecasts. Employers report a record number of job openings, but say they’re having trouble filling them.
Steve Fazzari, a Washington University economics professor, said it was probably unrealistic to expect a rapid bounce-back in hiring this spring. “The lockdown experience we had last spring is unprecedented,” he said. “The economy is recovering pretty quickly, and the recent job growth by historical standards is reasonably fast.”
Joel Prakken, chief U.S. economist at IHS Markit, thinks it’s just a matter of time until hiring catches up with the booming economy. His firm predicts that the 7-million-job deficit will be erased by mid-2022.
“We show an acceleration in job growth in the second half of this year up to 1 million jobs a month for awhile,” Prakken said. August and September, he added, could see some of the biggest gains.
The labor market will undergo a couple of important changes in those months. The federal supplement to unemployment benefits expires on Labor Day, and most schools are expected to resume in-person classes when they start the fall semester.
Many employers say the federal money has made workers reluctant to look for jobs, and 25 states are cutting the benefits off early. (In Missouri, they end this weekend.)
“I do think there’s some disincentive that’s in play” because of the benefits, Prakken said. “We just don’t know how much.”
The reopening of schools could be equally important. Schools will need to rehire bus drivers and cafeteria workers they laid off when classes went virtual. More than 500,000 of the jobs lost since February 2020 are in the local government education sector.
At the same time, parents who have been staying home to supervise their children’s online education will be free to return to the labor force.
Those parents, and other Americans who opted not to work during the COVID-19 pandemic, may be lured back by rising wages. “As the labor market tightens, it encourages a return to work by previously discouraged workers,” Prakken said.
Still, not everyone who had a job before the pandemic will be rushing to fill out applications. Labor force participation — the percentage of the working-age population holding or looking for a job — has fallen from 63.4% early last year to 61.6% now, and the drop has been especially steep among people over age 55.
“Some older people who were approaching retirement may have decided to take early retirement, and they’re done,” Prakken said. “That’s a one-way situation, and there also are lingering concerns about safety in the workplace.”
As a result, he predicts, the labor force participation rate will be slow to rebound and may not climb back to its previous level.
Nevertheless, Prakken expects a strong job market for years to come. His firm predicts that unemployment will fall below 4% next year, roughly matching the pre-pandemic rate.
Even better, it sees that combination of strong economic growth and low unemployment continuing for at least three to four years. No one will forget the COVID-19 recession of 2020, but it will feel good to leave it in the rearview mirror.