Mounting economic
and labor challenges

There’s good news and bad news when it comes to the U.S. labor market. The good news? The market continues to add jobs. The bad news? Nearly three million people have been permanently laid off as a side effect of the pandemic.

July 09, 2020

The labor market continued to rebound in June, adding a net 4.8 million jobs. That brings the two-month total to 7.5 million, roughly 10% (14.7 million net jobs) below the peak from February. While widespread, notable job gains occurred in industries hit hard by the pandemic: leisure and hospitality gained 2.1 million jobs, retail trade gained roughly 740,000 jobs, and education and health services gain 568,000 jobs. The unemployment rate declined again to 11.1% and the labor force participation rate increased.

Yet signs of ongoing labor market struggles are becoming more apparent. Initial unemployment claims remain elevated, above 1 million. Meanwhile, the number of those unemployed, but not on temporary layoff (i.e. permanently laid off) increased by 588,000 to roughly 2.9 million.  That indicates that a rising number of temporary layoffs are transitioning to permanent status as the crisis drags on.  And some industries, notably state and local governments, continued to lose jobs.

More challenges lie ahead for the resurgent labor market. The surveys for June that produced the monthly employment situation occurred during the week of June 12, before the recent surge in coronavirus cases which produced new lockdowns and slowed the reopening of state economies. Limiting certain businesses (e.g. retail stores, bars, restaurants) to a percentage of pre-pandemic capacity will limit their ability to generate revenue and to consequently rehire staff. And as businesses fail, they will not exist and therefore not rehire workers, even if the economy continues to reopen. Government support programs could expire without renewal toward the end of July. They are helping to prop up the labor market. For example, the Treasury Department revealed that 4.9 million firms that employ 51 million people borrowed funds under the PPP program. All these factors hint that future progress in job growth could become slower and more inconsistent.

Concerns that government benefits are restricting the recovery in the labor market (and consequently the economy) seem overblown. Only about one-third of people hired in June were out of the labor force in May which means that they were not actively looking for work; the balance was actively looking for work. Moreover, if government benefits incentivized people to remain out of the labor force even as the economy improves, open but unfilled positions would be growing. But data indicates that is not occurring.

Longer term, the issue of open schools and available childcare remains an important question. For millions of workers, especially women, open facilities for children remain a necessity. Roughly 23% of workers parent a child under the age of 13 (when they require more supervision) at home. In the absence of these facilities opening, many workers (typically women) will decide not to return to the labor force and even the ones who do will likely experience impairments to their productivity.