October 06, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, October 8 at 8:30 AM Eastern Time.)
The August jobs numbers came in considerably weaker than had generally been expected, at 235,000, although the unemployment rate did fall by 0.2 percentage points to 5.2 percent. The August number followed three months where average growth had been almost 880,000.
It seems likely that we are on a slower employment growth path than in the spring and early summer. Job growth is likely to be in the 300,000 to 400,000 range, which should still be sufficient to lower the unemployment rate by 0.1–0.2 percentage points. While we should look to get back to the 3.5 percent unemployment rate we saw pre-pandemic, and hopefully lower, it is worth keeping in mind that following the Great Recession we did not get down to a 5.0 percent unemployment rate until September of 2015.
Employment Fell in Low Paying Sectors in August
Many analysts attributed the weaker than expected growth in August to the spread of the delta variant, but it’s not clear the pandemic had that large an impact on employment growth for the month. Supporting this case, restaurants employment fell by 42,000 in August, this followed three months in which the industry added an average of 247,000 jobs a month. But there is an alternative explanation.
Restaurants were not the only industry that lost jobs in August. There were also declines in employment in grocery stores, home health care, nursing homes, and child care. Demand in these other industries would only be affected to a very limited extent by the spread of COVID-19. What these sectors have in common is that are all low paying, and are apparently now having trouble attracting workers at the wages they had been offering.
Clearly there was some effect from the spread of the delta variant on restaurant employment, but given the decline in employment in other low paying sectors, it seems likely that supply considerations were a larger factor. Real sales in restaurants are already well above pre-pandemic levels, although this is almost certainly due to a shift from in person eating to carry out.
The rapid growth in wages for restaurant workers is certainly consistent with this supply-side story. Over the last year, the average hourly pay for workers in leisure and hospitality (which is mostly restaurants) has risen by 12.8 percent. Inthe last three months (June, July, August) compared with the prior three months (March, April, May), the average hourly wage in the sector has risen at 23.7 percent annual rate.
The End of Unemployment Insurance Supplements
Many employers have been arguing that the $300 weekly unemployment supplements were discouraging people from accepting low paying jobs. While there may have been some limited effect, more than half the states had ended these benefits by the end of July, and the federal program ended in early September, so any disincentive effect from these benefits should be largely absent in the September data.
State and Local Government Employment
Employment in state and local governments is still down 815,000 from its pre-pandemic level. The sector lost 11,000 jobs in August after adding 246,000 in July. This is likely largely a question of timing; jobs that didn’t show up in August will show up in September. With schools back to in-class instruction pretty much everywhere, we should see strong job growth in the state and local sector in this report. With most state and local budgets in reasonably good shape, employment will likely bounce back to something close to pre-pandemic level.
Self-Employment
The number of people reporting that they are unincorporated self-employed has been running more than 700,000 above the average for 2019. This is an increase of more than 7 percent. The monthly data are erratic, but the longer we see this pattern, the more likely it is that we are seeing a real increase in the number of people who have decided to start their own business.
Long-term Unemployment
The share of unemployment due to people who are out of work more than 26 weeks hit extraordinarily high levels in the pandemic recession, exceeded only by the peaks following the Great Recession. The share has dropped slightly in the last few months, but at 37.4 percent, it is still unusually high.
Unemployment Due to Voluntary Quits
In a strong labor market, many workers will feel comfortable quitting a job before they have new one lined up. The share of unemployment due to voluntary quits plunged to record lows during the shutdown period, but it has been rising back to more normal levels this year. Still, at 9.9 percent, it is far below the 14–15 percent levels we would expect in a strong labor market.
Black Teen Unemployment
The unemployment rate for Black teens fell to record lows in May and June. It has risen in the last two months, but the 17.9 percent August rate is still extraordinarily low. The question is whether as the economy reopens further, whether these workers will be displaced by other workers returning to the labor market, or whether increased job openings will give them more opportunities.
Wage Growth
We have been seeing rapid wage growth in recent months, especially in the hotel and restaurant industries, as noted above. The average hourly wage overall is up 4.1 percent from the last year. That is somewhat more rapid than the pre-pandemic clip, which was just over 3.0 percent. It will be important to see whether growth accelerates as employers respond to what they claim is a labor shortage, or whether it slows as the economy gets closer to normal. It is important to recognize that if we can sustain a more rapid rate of productivity growth, the economy can sustain stronger wage growth without inflation.
We are seeing a labor market that is still struggling with a pandemic that has not gone away, slowing growth domestically and creating bottlenecks worldwide. Nonetheless, we are likely to see job gains, even as employment remains well below pre-pandemic levels.
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