The Labor Market and “Labor Shortage” Employment growth and the decline in the unemployment rate have been extensive since April 2020 when the negative impacts of COVID on the economy peaked. Although employment growth has been significant, there were still approximately 4 million fewer employed in October 2021 than in February 2020. Despite the decrease in employment, “labor shortages” have been discussed as many businesses have not been able to hire desired employees. Next, a discussion of factors potentially affecting the labor market and “labor shortages.” Extended Unemployment Benefits In March 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and became law. The CARES Act established the Federal Pandemic Unemployment Compensation program, which provided an additional $600 per week to individuals who were collecting regular unemployment insurance benefits. The additional $600 payment ended in July 2020, but in January 2021 the program was partially reinstated, with an additional $300 payment that was scheduled to end in March 2021. The American Rescue Plan, passed in March 2021, extended federal unemployment programs, including the $300 additional payment, through September 4, 2021. However, states could opt out of the extended benefit program. In an attempt to incentivize workers to return to work, 26 states ended the federal benefit before September, with 22 states ending the program in June. Did ending the benefits early prompt a flood of workers to return to work? No, according to multiple studies. “Early Withdrawal of Pandemic Unemployment Insurance: Effects on Earnings, Employment and Consumption” from a team of economists and researchers at Columbia University (K. Coombs and S. Naidu), Harvard University (C. Janke and R. Kluender), the University of Massachusetts Amherst (A. Dube), and the University of Toronto (M. Stepner) concluded that ending the unemployment benefits early provided only a relatively small increase in employment relative to states that did not end benefits. However, the resulting decrease in consumer spending that resulted from 7 out of 8 people not finding employment caused a drastic decline in consumer spending and lowered state economic growth from what would have occurred if benefits did not end. The bottom line – ending the unemployment benefits early did not result in a significant return to work for the unemployed. UKG, a payroll and time management firm, compared data of states that ended unemployment benefits early relative to states that did not end benefits. The UKG data showed that states ending additional federal unemployment benefits grew workforce activity among hourly employees at a lower rate of growth relative to states that continued the additional benefit. The extension of unemployment benefits was not the primary reason that people did not return to the workforce. Job Openings As the economy recovered in 2021, the number of U.S. job openings skyrocketed. The chart below shows the number of U.S. monthly job openings since 2000. Looking at the number of U.S. monthly job openings since 2000 provides a picture of how significant the number of job openings has been recently. Prior to 2014, the number of monthly job openings was generally below 5 million. Following the end of the financial crisis in 2009 an expanding economy contributed to monthly job openings gradually increasing from approximately 2.2 million in July 2009 to a pre-COVID peak of nearly 7.6 million in October 2018. As economic growth slowed in 2019 the number of monthly job openings declined consistently to a yearly low of 6.7 million in December. The number of monthly openings dropped precipitously in early 2020 due to COVID to a low of 4.6 million in April 2020 before increasing later in the year. By December 2020, the number job openings was approximately equal to the number of job openings one year earlier. The number of job openings had increased by over 2 million from a COVID low of 4.6 million in April 2020 to over 6.7 million in December. However, in 2021 the number of monthly job openings exploded to record levels. The number of job openings in July 2021 was slightly greater than 11.0 million, an increase of 4.3 million job openings (64%) from the December 2020 level. Although the number of job openings slightly declined after July, the number of job openings remained strong. The number of job openings totaled just under 10.5 million in September, down from the record high 11.0 million in July. This compares to a pre-COVID high of 7.6 million job openings in November 2018.
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Center for Business and Economic Insight
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