Job Gains Increase as Labor Shortage Debate Continues
May 2021 BLS Jobs Report Analysis
According to the latest BLS Jobs Report, the U.S. economy had a net gain of 559,000 jobs throughout May 2021, and the unemployment rate dipped below 6% for the first time since April 2020. Although the unemployment rate briefly reversed its downward trend in April 2021, as you can see in the graph below, it hit 5.8% the following month.
To gain a better understanding of how we got to this point, let us once again take a closer look at this month’s data in the context of the progress made since 2020.
May 2021 Job Gains and Losses
Although the millions of jobs lost in April 2020 continues to dominate the graph below, we are beginning to see the pace of new jobs picking up once again.
The net increase of 559,000 jobs last month marks the second highest number of jobs added this year. March 2021 still holds the top spot in the center of the following graph showing just 2021’s job gains.
We still have a long path to total economic recovery ahead since the economy is not yet back to where it was before the pandemic. Approximately 9.3 million people remain unemployed, which is 3.6 million higher than when the unemployment rate was 3.5% in February 2020. U-6, the broadest measure of unemployment the BLS tracks, is down to 10.2% for May, but the labor force participation rate has been hovering between 61.4% and 61.7% since June 2020.
One positive development is a downward trend in the percentage of people facing long-term unemployment, or those who have been unemployed for 27 weeks or longer. The following graph shows that 40.9% of all unemployed people have been unemployed for 27 weeks or longer, which is still far too high, but that percentage is beginning to fall.
There were also some positive revisions to prior months’ figures, including March job gains being revised up from 770,000 to 785,000 and April’s from 266,000 to 278,000. Taken together, these figures represent a gradually rising three-month average, which reached an average of 541,000 jobs as of May 2021. You can see these revised figures, as well as a breakdown by industry, and three-month averages in the table below.
You can likewise see that, once again, the leisure and hospitality industry tops the charts for job gains in a particular industry, with 292,000 net jobs added. Unfortunately, this data also reveals a net loss of 20,000 jobs in the construction industry, alongside last month’s flat numbers being revised down to a net loss of 5,000 jobs. No other sector suffered as many net jobs lost throughout May 2021 as the construction industry.
I suspect that these losses may be driven by material price increases and other recent disruptions interfering with construction projects. My hope is that many of these disruptions are temporary bumps in the road along the path towards stronger growth in construction jobs like we saw in March, when 93,000 construction jobs were added. For example, given the downward trend in lumber prices – as you can see in the graph below – which signals a possible return to normalcy in that part of the construction supply chain, perhaps other disruptions will also soon be resolved. Congress could also enact the American Jobs Plan to create millions of good construction jobs, but time will tell how the construction industry recovers from pandemic disruptions.
While May’s monthly numbers show some positive signs as well as evidence of lingering pandemic disruptions, it is still important to examine broader trends as new data becomes available.
Three-Month Trends
As mentioned in prior articles, month-to-month figures can be useful but volatile, so examining broader trends can help tune out some dissonance. The graph below shows that even industries like construction, which lost more jobs than any other industry during the month of May, are still growing overall.
Returning once again to the three-month averages for job gains we discussed earlier, I charted out these averages to help readers visualize the general trend of job growth. In the graph below, the green bars represent the three-month averages calculated as of the April Jobs Report, and the blue bars represent those same averages with the revised figures shown in this latest Jobs Report.
The three-month average calculated for February, which appeared in the April Jobs Report, is far lower than subsequent months due to January and December figures dragging the average down. The current revised figure for February job gains is 536,000, but due to adding only 233,000 jobs throughout January 2021 and losing 306,000 jobs throughout December 2020, the three-month average for February came out to roughly 154,000.
On the brighter side, this current Jobs Report resulted in positive revisions for March and April job gains – although revised March figures are still lower than the initially reported 916,000 jobs gained – and these upward revisions resulted in higher averages for March and April, hence the taller blue bars beside the green bars for these months in the graph above. Ideally, the U.S. economy will maintain this upward trend as we respond to disruptions and get the pandemic under control, but we should monitor new data as it becomes available and let that guide our policymaking decisions as we continue to recover.
The Ongoing Labor Shortage Debate
Despite an incomplete economic recovery, and millions of people still being without work, 25 Republican governors – all but two of the country’s 27 Republican governors – are prematurely cutting federal unemployment benefits, and more governors could follow suit. These governors cut benefits in an effort to spur job growth, but evidence shows that this miraculous job growth has not happened.
Job growth could still increase throughout these Republican-led states in the future, but there are many economic forces impacting the job market, and it is difficult to disentangle and isolate any single factor. Perhaps a forthcoming economic study will attempt to do so after more data is available, but I am currently doubtful that cutting unemployment benefits would drive job growth.
Some even argue that these Republican governors are cutting benefits illegally, based on how the American Rescue Plan legislative text does not allow for voluntary participation in, or withdrawal from, the Pandemic Unemployment Assistance program. The unemployed workers of Indiana agree and are suing to have their benefits restored.
The Biden administration, however, fought back against Republican governors about as hard as they fought for the $15 per hour minimum wage, saying these governors “have every right” to prematurely cease providing the federal unemployment benefits that Congress enacted. I will continue to monitor this case, but I certainly hope that the workers prevail (and that the Biden administration grows a backbone). Meanwhile, there are also some key statistics and evidence which we should review in order to get a better understanding of the underlying economic situation.
In addition to the BLS Employment Situation News Release, the BLS also releases a Job Openings and Labor Turnover Survey (JOLTS) News Release. As the name suggests, this report tracks the number of job openings in various industries, and also how many hirings and “separations” – which includes workers quitting, facing layoffs, or being discharged – occur in these industries. The latest JOLTS release as of the time this article was written outlines such data for April 2021.
According to this JOLTS release, there were a record 9.286 million job openings across the U.S. economy. What appears to be getting the most attention in this labor shortage debate is this subset of the leisure and hospitality industry, the accommodation and food services sector. Accommodation and food services has the largest number of openings of any other subset, amounting to roughly 1.338 million job openings. However, despite 1.247 million hires in this sector, there were 896,000 separations.
Of those 896,000 separations, 681,000 people quit their jobs, or about 76% of total separations. Millions of people quit their jobs in many industries for various reasons, but the pandemic seems to have people reflecting on work and life in general; considering different approaches, different industries; and looking for the best path forward for themselves and their families during uncertain times.
Unfortunately, many of these workers who quit their jobs will not qualify for unemployment insurance (UI) benefits due to requirements set in state laws. Some workers may qualify for UI benefits if quitting for a “good cause”, such as workplace safety concerns, but these requirements may also vary from state to state. The CARES Act expanded such “good cause” definitions to include reasons related to COVID-19, but even these provisions offer limited protection. Around the same time that these workers quit their jobs throughout April 2021, the Biden administration put out a statement specifying the terms of receiving unemployment benefits:
The Department of Labor will clarify that, under all UI programs including the Pandemic Unemployment Assistance (PUA) program put in place last year, workers may not turn down a job due to a general, non-specific concern about COVID-19 and continue to receive benefits.
This puts a heavy burden of proof on workers, who must navigate administrative hurdles and health department specifications to avoid falling through the cracks in the American safety net. Just as online retailers understand that administrative hurdles increase the number of shoppers who abandon their digital shopping carts, and therefore offer one-click shopping, research shows that administrative hurdles in front of social safety nets often prevent eligible people from successfully claiming their benefits. These inefficiencies and deficiencies can and should be remedied, but I still doubt that unemployment benefits are the determining factor in food service job openings remaining open.
Experts are also skeptical of arguments claiming that the federal unemployment benefits are preventing stronger job growth. I cited in a previous article an economic study which examined the link between the $600 per week in federal unemployment benefits authorized by the CARES Act and workers’ decisions to accept job offers. Even then, when the federal unemployment benefits were double the amount that they currently provide, workers frequently accepted job offers due to the temporary nature of unemployment benefits. Despite frequently bringing in more money per week from UI benefits in the short term, these workers would accept job offers if they thought they would remain employed for longer than unemployment benefits might last.
More recently, economist Heidi Shierholz, and director of the Economic Policy Institute, wrote about her opinion on the situation in a New York Times op-ed:
Low-wage sectors have seen swifter job growth than higher-wage sectors in recent months. This is exactly the opposite of what you would expect to find if unemployment benefits were keeping people from working. This is because pandemic programs, like the extra $300 weekly benefit, are worth much more to low-wage workers than to higher-wage workers. Unemployment insurance, then, is not hampering job growth.
Shierholz also notes that, given the just under $400 per week average wages in the leisure and hospitality industry, this equates to little more than $20,000 per year in a 52-week work year. These essential workers are effectively being asked to put their lives on the line, endure harassment, enforce local health regulations, while often facing unpredictable schedules and work conditions, and do so for wages which barely cover rent in many places throughout the U.S. In addition to unpredictable hours, the BLS estimates that the average weekly hours worked in the leisure and hospitality industry is 26.6 hours throughout May 2021, which frequently means these workers will not receive any full-time benefits alongside wages.
So, while there are job positions remaining unfilled in certain sectors – especially those most directly impacted by the pandemic – many are describing it in terms other than a “labor shortage”. Some have called it a “great reassessment” or a “great reallocation” in the labor market. I tend to prefer these types of more nuanced labels, even if there may be some limited similarities between our current situation and actual labor shortages, because the reality is clearly more complicated than just shortages.
But regardless of what you call it, or how you want to label our current situation, workers are gaining a long overdue upper hand in negotiations. As a result, many businesses are finding the help they need by offering better wages and hours, and, at least in this writer’s opinion, it sounds like the employers and employees are mutually benefiting from such arrangements.
Perhaps there’s something to the economic research suggesting “higher wages for low-income workers lead to higher productivity” and other positive correlations between working conditions and business outcomes. Either way, searching for a good job – even if it takes a few months longer to find the right fit – seems better for workers and the economy than a repeated cycle of accepting a bad job offer and quitting shortly thereafter.
Other data surrounding the labor market can be analyzed in further detail, such as job and wage growth data, and we should keep an eye on new data as it becomes available, but I agree with the experts who are doubtful of widespread, bona fide labor shortages. I also agree with journalist David Dayen’s assessment that “it’s the worst possible time to cut unemployment benefits”.
I hope that the workers of Indiana prevail in their lawsuit to regain their unemployment benefits, and I hope that other states and the Biden administration also stand up against reactionary Republican governors.
Thank you for reading my newsletter and taking the effort to learn about making the world a better place. I look forward to hearing your thoughts on how we can make progress towards a more just economy.
-JJ
Updated 6/27/2022 - Updated graph and table captions
Updated 10/7/2021 - Swapped the original dark-theme graph for one with a white background & added a caption; italicized sign-off paragraph; added caption to lumber graph.