The jobs didn’t clock in on Friday morning. Economists had expected the U.S. economy to add about 1 million jobs in April. Instead, payrolls expanded by only 266,000, according to the government’s new labor market report. Meanwhile, March’s robust 916,000 job gain was revised down to 770,000.
This perplexed pundits and policy wonks. After all, the stimulus checks have all been sent. COVID cases are down and the vaccination rate is up. Weekly jobless claims — a gauge of how many Americans are being laid off — have fallen steadily in recent weeks. Consumer confidence is at 14-month high, and the housing market is booming.
So where are the jobs? And, more to the point, should their shocking scarcity change how we conceptualize the post-COVID recovery? To this point, analysts had expected the labor market to rapidly rebound, thanks to a combination of strong fiscal support and robust economic fundamentals: The U.S. economy did not enter a recession last year because of a financial bubble or structural imbalance, but rather, because a deadly virus was raging out of control. Thus, once that virus ceases to menace the population, growth should take off like a rocket ship.
Did this view underestimate the challenge of economic revival in the aftermath of a global pandemic (an event without precedent in living memory)? Or is April’s jobs report a mere bump on the road to the Biden boom?
The answer to this question will depend, in part, on how one explains April’s tepid job growth. Here are five prominent (and not necessarily mutually exclusive) theories of why April was the cruelest month for labor-market forecasters:
1. Enhanced UI benefits have led workers to hold out for better terms than employers are willing to provide.
For weeks now, small business owners in general — and restaurateurs in particular — have been lamenting their inability to find workers (at the wages they’re used to paying). And they have blamed this difficulty on a simple fact: Thanks to the American Recovery Plan’s $300 federal unemployment benefits, a lot of workers can live comfortably on Uncle Sam’s dime.
March’s strong job gains made such complaints sound like the special pleading of capitalists who didn’t want to pay competitive wages. But their anecdotes were backed up by a growing number of unfilled online job postings. Now, understaffed small businesses, and their political champions, are pointing to April’s job data as vindication.
And not without some cause. If job growth were being limited by worker abstention from employment, rather than by limited labor demand, you’d expect to see two things: (1) Average hours worked moving higher, as employers try to get as much labor out of their existing staff as possible, and (2) wage growth, as firms are forced to compete for the limited supply of job seekers. And in April, both these dynamics were present, albeit to varying degrees. Consistent with anecdotes, average weekly hours rose especially sharply in the leisure and hospitality industries.
Meanwhile, average hourly wages inched up by 0.7 percent.
This said, much of Friday’s data is inconsistent with the “labor shortage” story. For one thing, the labor supply actually expanded last month — the number of Americans looking for work increased by 430,000. If the primary constraint on job growth was the welfare-induced shiftlessness of America’s non-employed, we would expect to see labor-force participation remain stagnant or fall. For another thing, leisure and hospitality — the sector most sensitive to a welfare-induced labor shortage, due to its relatively low wages and the large number of former food-service workers eligible for UI — added more jobs in April than it had in March. The headline jobs number was not depressed by tepid restaurant hiring, but by large job declines for couriers and grocery-store workers, and small ones in manufacturing and retail. Finally, although wages rose in April, they didn’t rise by much. Were employers suffering from a severe labor shortage, we’d expect to see more upward pressure on both wages and prices.
Regardless, it’s worth noting that “Did enhanced unemployment benefits slow job growth?” and “Are enhanced unemployment benefits a good policy?” are two separate questions.
If enhanced UI benefits are allowing the unemployed to hold out for higher wages, or pursue education or job training, or wait for jobs that better match their skills, then enhanced UI may be economically beneficial for them in the long term, even if it keeps them jobless in the short run. At the same time, if employers have a limited supply of workers to choose from, they may be more likely to take a chance on a formerly incarcerated or partially disabled worker, who might otherwise struggle to get a foothold in the labor market. (Roosevelt Institute economist J.W. Mason flagged these potential upsides of a UI-induced labor shortage weeks ago, before progressives needed to defend the policy in these terms.)
2. Schools and day cares haven’t fully reopened, and this is keeping many mothers from returning to the labor force.
Another thing that might have limited the supply of workers eager to take any available job is that the institutions that typically provide working parents with daytime child supervision — from schools to day care — have not returned to normal operations in many parts of the country. Given that child-care responsibilities remain heavily gendered in our society, the fact that women’s labor-force participation fell last month suggests that this was indeed a factor.
In fact, it looks like the unavailability of child care did far more to shrink the labor supply than enhanced UI benefits did. As Matt Bruenig shows, using gross labor force flows data, more workers went from being unemployed to employed in April than in March. The reason job growth nevertheless declined was because more workers went from being employed to unemployed — or from being unemployed (i.e., jobless but looking for work) to being “not in the labor force.” This data is not consistent with the idea that job growth was primarily slowed by the excessive choosiness of pampered UI recipients.
By contrast, the gross labor force flows data is consistent with the theory that a child-care shortage limited the labor supply, as women were far more likely to exit the workforce than men.
3. Supply-chain bottlenecks are constraining production in some key industries.
Beyond the constraints on the supply of labor, other key inputs for production were hard to come by in April. Even as demand for manufactured goods was healthy last month, the sector shed 18,000 jobs, partly because a global shortage of semiconductors limited auto production. Meanwhile, shortages in lumber and steel may have depressed job growth in the construction industry.
4. The government’s “seasonal adjustment” formula might be obsolete in the age of COVID.
Sometimes, the numbers lie. One meta-explanation for why job growth was poor in April, despite various other positive economic indicators, was that job growth was not actually very poor in April; it just looks that way because of the government’s imperfect statistical methodologies.
The jobs report does not relay the raw results of the Labor Department’s employment survey. The government makes seasonal adjustments to its raw data, in attempt to control for the impact of holidays and weather on job availability. After all, the goal of the report is to provide insight into fundamental labor-market conditions. To discern whether the economy’s fundamentals actually improved between November and December, for example, one has to control for the influence of temporary, pre-Christmas hiring.
But it’s far from clear that seasonal impacts on employment are the same in pandemic years as they are in ordinary ones. And the non–seasonally adjusted jobs data from April was notably in line with expectations: Before Uncle Sam’s number crunching, the survey showed an increase in payrolls of about 1.1 million.
Given the contradictions between the seasonally adjusted employment figures and the report’s other data, a number of economists and financial analysts have argued that COVID broke the government’s formula:
This said, the discrepancy between this April’s raw job total and the seasonally adjusted one was not larger than usual. And the raw number was itself lower than economists had anticipated.
5. It takes time for a labor market to recover from a pandemic (that has not actually ended).
Finally, there’s the possibility floated at the top of this post: that we underestimated the difficulty of transitioning out of a pandemic economy.
The high level of job losses among grocery workers and couriers is telling in this regard. Over the past year, COVID reshaped the labor market to the peculiar consumption patterns of a public-health crisis. Demand for in-person dining fell, while demand for groceries and delivery increased. As the threat of a deadly virus abates, consumers are drifting back toward their pre-pandemic habits. And that will mean a lot of job displacement in sectors that had thrived during the pandemic.
By itself, this shouldn’t pose a long-term problem for the economic recovery. Job growth in dining and retail should eventually overwhelm losses in delivery and groceries, as overall consumer demand for goods and services rises. Still, there are other headwinds facing the not-quite-post-pandemic economy. Office workers have not returned to their glass towers en masse, and it’s not clear whether demand for commercial real estate — and for the businesses that are used to servicing the needs of corporate headquarters — will ever return to anything resembling their pre-pandemic levels. Similarly, demand for air travel is also far below the pre-COVID norm. To the extent that the normalization of Zoom conferences permanently reduces the prevalence of business travel, the airline business could undergo painful adjustments.
Nevertheless, it remains very possible that a post-COVID boom is still in the offing. Many of the present drags on job growth appear to be temporary — the under-capacity of schools and day cares, semiconductor bottlenecks, and shifts in labor demand are unlikely to persist long after COVID ceases to constitute a major threat to public health.
America does need more jobs, and its families need more help. But Congress has the power (and plans) to provide both.