“COVID-19 recession” highlights disparities in nation’s job market comeback

March 29 - April 4, 2021

By Wesley Brown

While three stimulus packages totaling nearly $6 trillion have rebooted large sections of the economy during the yearlong COVID-19 pandemic, the consensus among the Federal Reserve and other top forecasters is that the nation’s job recovery still has a way to go.

In March 24 testimony before the House Committee on Financial Services, which includes Arkansas congressman Rep. French Hill of Little Rock, Federal Reserve Chairman Jerome Powell offered a measured view of the nation’s economic recovery days ahead of the upcoming one-year anniversary of the Coronavirus Aid, Relief, and Economic Security (CARES Act).

Powell, chair of the influential Federal Open Market Committee (FOMC) that sets the nation’s monetary policy, said the CARES Act represented “by far the fastest and largest response to any postwar economic downturn.” He said the historically important legislation approved by former President Donald Trump on March 27, 2020, provides critical support in our nation’s hour of need.

“As the virus arrived in force, our immediate challenge was to limit the severity and duration of the fallout to avoid longer-run damage. At the Fed, we also acted with unprecedented speed and force, using the full range of policy tools at our disposal,” Powell said in congressional testimony.

“Today the situation is much improved. While the economic fallout has been real and widespread, the worst was avoided by swift and vigorous action—from Congress and the Federal Reserve, from across government and cities and towns, and from individuals, communities, and the private sector. More people held on to their jobs, more businesses kept their doors open, and more incomes were saved,” Powell added.

Highlighting an upturn in consumer spending, the fully recovered housing market, and the recent pick up in business investment and manufacturing production, Powell said although conditions in the labor market have recently improved employment are still well below year-ago levels.

In the February jobs report released on March 5, the U.S. Bureau of Labor Statistics reported that nonfarm employment rose by 379,000 between months as the nation’s jobless rate was unchanged at 6.2% with 10 million Americans seeking gainful employment. A year ago, the nation’s jobless rate was at a near-record 3.5% with only 5.7 million persons out of work.

“The recovery has progressed more quickly than generally expected and looks to be strengthening. This is due in significant part to the unprecedented fiscal and monetary policy actions I mentioned, which provided essential support to households, businesses, and communities,” said Powell. “However, the sectors of the economy most adversely affected by the resurgence of the virus, and by greater social distancing, remain weak, and the unemployment rate—still elevated at 6.2%—underestimates the shortfall, particularly as labor market participation remains notably below pre-pandemic levels.

Millions of workers still sidelined

According to the Georgetown University’s Center on Education and the Workforce, which tracks U.S. employment totals using BLS data, estimates cumulative job losses hit 23 million in April 2020 after COVID-19 restrictions and shelter-in-place orders forced thousands of U.S. businesses to close a year ago. More than half of those jobs have been recovered, but there are still some 8.46 million workers that remain on the sidelines.

Powell said while there is obvious progress in the current recovery, he did not want to lose sight of the “millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit.”

As noted, Powell and other economic forecasters have noted the elevated unemployment rate for Black and Hispanic workers at 9.9% and 8.5%, respectively, compared to whites and Asians at 5.6% and 5.1%. In fact, economists with the New York Federal Reserve District highlighted the disparity among Black workers in its highly watched “Liberty Street Economics” blog released on Feb. 9.

Launched in 2011, the blog takes its name from the New York Fed’s headquarters at 33 Liberty Street in Manhattan’s Financial District. The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s research group. Calling last year’s downturn the “COVID recession,” the research team said the historic spike in the nation’s jobless rate to 14.8% was accompanied by an almost three percentage point decline in labor force participation.

“While the subsequent labor market recovery in the aggregate has exceeded even some of the most optimistic scenarios put forth soon after this dramatic rise, the recovery has been markedly weaker for the Black population,” said the Liberty Street economic team.

The report by the New York Fed, which is led by FOMC Vice Chair and Second District President John Williams, also noted that most post-war recessions tend to have disproportionately adverse effects on the labor market outcomes of Black workers. For example, in the years leading up to the Great Recession of 2007-09, the unemployment gap between Black and white workers reached as low as 3.4 percentage points, but it peaked at 8.5 percentage points during the aftermath of the Great Recession.

“The COVID recession has been no outlier in this regard, as shown in the chart below. The unemployment rate rose significantly more for the Black population, pushing the Black-white unemployment gap from 3 percentage points in February to 5.4 percentage points in August,” said the Fed economists. “Similarly, while the long expansion following the Great Recession had narrowed the long-standing Black-white participation gap, the pandemic erased these gains. Participation fell more severely for the Black population at the onset of the pandemic and has since recovered more slowly.”

The Wall Street economic forecasters traced the rising and persistent Black-white unemployment and labor force participation gaps to the underlying flows between labor market states. For Black workers, a lower job-finding rate and a higher separation rate into unemployment have contributed to the larger increase and subsequent slower recovery of the unemployment rate.

“While the job-finding and job-loss rates for Black and white workers have converged recently, resulting in a narrowing of the Black-white unemployment gap, the transition rate from employment into nonparticipation for Black workers remains elevated,” said the Federal Reserve report. “This relatively high rate of labor force exit for Black workers may lead to a persistently elevated Black-white labor force participation gap and an uneven labor market recovery.”

Arkansas job market recovery

Closer to home, newly revised state-level data on employment and unemployment shows that the state’s economy is continuing to recover from the pandemic-related contraction in 2020, according to University of Arkansas economist Michael Pakko. In Arkansas’ most recent job market report released March 15 by the state Division of Workforce Services, revised BLS data shows the Natural State unemployment rate fell 0.3 percentage points in January to a tidy 4.6%. 

After peaking at 10% in April 2020, Arkansas’ jobless rate is well below the national jobless rate of 6.2% and moving closer to year-ago levels when unemployment held at 3.5%. In January, Arkansas’ civilian labor force declined to 3,360, a result of 3,635 fewer unemployed and 275 more employed Arkansans. Before that month-to-month decline, Arkansas’ civilian labor pool had recovered all the 84,000 positions lost during the pandemic with a total of 1,379,313 workers.

The 3,360 falloffs in the first month of 2021, however, pushed the state’s labor pool to 1,375,953, which includes 1,312,417 workers on employers’ payroll and 63,536 out-of-work people seeking new jobs. Pakko recently noted on his “Arkansas Economist” blog that revised BLS data shows that the initial decrease of 148,000 jobs a year ago is not as dire as previously thought.

The uneven pattern of employment recovery is now smoother than previously reported, although a large spike in employment in December 2020 remains,” said Pakko, director of UALR’s Economic Development Institute. “With regard to the labor force, the changes to both components—employed and unemployed—contribute to a smoother profile with an initial drop in participation in May followed by further declines through November, with a sharp recovery in December.”

Of all the sectors of the national economy that have been disrupted by the COVID-19 pandemic, BLS data shows the leisure and hospitality industry has been among the hardest-hit.  “These industries continue to show persistent declines in sales and employment, with many businesses remaining at-risk while other sectors of the economy recover,” said Pakko.

Nationally, the largest sub-sector impacted by pandemic included bars and restaurants. In those frontline businesses, employment dropped dramatically in April 2020, falling more than 48% from the previous year nationwide.  In Arkansas, where the leisure and hospitality sector is the state’s second-largest employer, the decline was slightly smaller at 38.5%.  After recovering during the summer months, employment levels were still down nearly 20% nationwide and about 10% in Arkansas at the end of the year.

The nation’s accommodations industry, which includes hotels and motels, campgrounds, RV parks, and other outdoor employers, also saw a deep dive of 43% and 48%, respectively, in May and April 2020.  In Arkansas, the decline was approximately 35.5% in both months, but Pakko said employment levels in the industry remain low at 25%.

That BLS data reinforces fall testimony before the Arkansas CARES Act steering committee by state Department of Heritage, Parks and Tourism Secretary (ADPHT) Stacy Hurst, who told state lawmakers that COVID-19 has had a devastating impact on the travel, hospitality, and service industry. Hurst testified during hearings on the distribution of the state’s $1.25 billion in CARES Act funding that Arkansas’ travel and hospitality sectors were the hardest hit and will take the longest to recover.

In response to Hurst’s testimony, the Arkansas Legislative Council in late October approved a $50 million business interruption grant for small businesses in the personal care, tourism, travel, recreation and hospitality industries. The grant program provides reimbursement for a portion of specific eligible expenses incurred by businesses in these industries between March 1 and Sept. 30, 2020.

However, the jobless rate for Black workers in Arkansas, which BLS data shows often work in the frontline leisure and hospitality and accommodations sector, closely mirrors the near double-digit national unemployment rate. In the month of January, the jobless rate for Black workers in Arkansas over the age of 16 was 9.1%, unchanged from December and 54.2% above year-ago levels.

According to a report by Jhacova Williams, an associate economist for Rand Corp., the COVID-19 pandemic has highlighted a well-known adage of “last hired, first fired.” In a Sept. 29 reported titled “Laid Off More, Hired Less: Black Workers in the COVID-19 Recession,” Williams described the dilemma Black workers face during all economic downturns.

“This isn’t the first time, either. When the Great Recession began, Black workers’ unemployment rate increased to double digits and remained that high for more than six years. In comparison, the unemployment rate among White workers never reached double digits during the Great Recession or its recovery,” said Williams. “It took more than 10 years for Black workers’ incomes to return to their pre-recession levels.”

In her research for the nonpartisan economic research think tank, Williams noted a higher percentage of White workers were called back to work each month compared to Black workers. Examining individuals who downgraded to permanent layoff also shows a similar story: As the pandemic dragged on, a higher percentage of Black workers reported being permanently laid off than did white workers.

“These figures echo two patterns that have affected Black workers in past recessions,” said Williams. “And if those are any guide, getting back into a job later rather than sooner could do lasting harm to millions of Black Americans’ incomes and wealth accumulation for years to come.”  

PHOTO CAPTIONS:

Recent surge in U.S. job market recovery does not trickle-down to service sector workers