THE CURRENT JOB OUTLOOK
Recovery At Risk: Will Covid and Inflation Stall the Jobs Rebound? by Gregory DeFreitas
O
ver the past year, as the world tried to struggle its way out of a global pandemic, the U.S. economy mounted an unusually rapid recovery. Aided by trillions in government funding and a public health campaign that had vaccinated 231 million Americans (70% of our population) by late November, the country seemed poised to enter the new year with a fragile optimism. However, recent months have tested that confidence with rising consumer prices and increasing infections from the Delta and Omicron coronavirus variants.
When infections from the Delta variant began increasing this fall, followed in late November by the Omicron variant, rising uncertainty once again started clouding economic forecasts. Month after month of relatively high inflation rates have darkened those projections even more. In early November, the US Bureau of Labor Statistics reported that consumer prices were averaging 6.2% above the level at the same time in 2020 – the steepest 12-month jump in over three decades! (Figure 2) Alarm bells sounded on Wall Street and in political circles over the perceived threat to the recovery of a possible return to double-digit 1970s-style inflation. Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on November 30th that: “At this point, the economy is very strong, and inflationary pressures are high. It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases.”3 Powell, a Republican banker, is being renominated for a second term as Fed chair by President Biden.
Since last January, the economy has created a massive 5.9 million more jobs. After U.S. unemployment hit nearly 15% during the April 2020 “Great Lockdown,” it took just 17 months for it to drop all the way down to 5%. That is over three times faster than the average time (53 months) it took to reach 5% unemployment after the previous three recessions. The latest establishment surveys by the US Labor Department have found impressive net growth in payroll jobs. November recorded a hiring jump of +210,000. The sectors leading in job gains were business and professional services; construction; manufacturing; and transportation. Unemployment fell in November to 4.2% (Figure 1) and the fraction of the population active in the labor force (either employed or actively seeking work) rose slightly to 61.8%.
Republicans have seized the inflation news as a new weapon to block the Biden administration’s current social safety net bill. So, US Chamber of Commerce economist Curtis Dubay says: “We’re not worried about the long-term. We have inflation in the here and now, and this policy will make it worse in the foreseeable future.”
The job recovery has inspired record numbers to quit their current jobs and spend more time looking for safer and better-quality new ones. A growing number have opted to open their own businesses. The Census Bureau recently reported that, after a 40-year decline in new business formation, last year Americans filed paperwork to start 4.3 million businesses – a 24% increase from the previous year. And much of the new self-employment is among women and racial/ethnic minorities.1 Many others have opted to increase their unions’ collective bargaining demands, some to the point of strikes or to launching union organizing efforts. These pressures have driven positive earnings trends as well: average hourly pay of all production employees rose 5.9% in the past 12 months, and by 13.4% for low-wage restaurant workers
If the central bank ends its bond-buying commitment sooner than expected, interest rates on business, home, auto and other loans would likely rise. While that might slow down price increases, it could also decrease both residential and business investment, thereby slowing the jobs recovery. That would, in turn, threaten working people’s efforts to finally recoup some earnings growth after decades of corporate wage suppression. However, amidst the elevated concern on inflation, the contrasts with the broad 1970s pattern are enormous. The 2021 price increases are still narrowly concentrated in a few industries hardest hit by supply-chain disruptions. Energy and used cars are by far the most affected sectors, each with double-digit inflation for months now. Also, price declines are still underway in sectors central to consumer holiday purchases. For example, since the BLS began publishing more detailed industry breakdowns in Dec. 2019, prices of smartphones have dropped by -29.1% and airline fares shrank -23.7%.
Still, the latest job growth was less than half that of October (+531,000) and the total number of jobs was some -3.9 million below the prepandemic peak of 152.5 million jobs in February 2020.2 Key sectors like health care and leisure and hospitality have had little job growth in recent months and remain well below pre-pandemic job counts. 5
And the November slowdown in job growth – from a survey before any Omicron infections were recorded – warns against a quick shift in monetary and fiscal policies off their current stimulative course. Though the unemployment rate continues falling toward 4% and labor force participation is edging toward 62%, neither of these metrics has recovered their pre-pandemic level of February 2020. The jobless rate is still nearly a percentage point above its 2019 level, representing an additional two million unemployed people. The labor force participation rate is well below its early 2020 peak of 63.3%. A similar participation gap is evident for men and women, and for all major racial/ethnic groups. If higher job quit rates suggest a continuing “Great Resignation,” the recent rise in labor force participation bolsters claims that millions are actively searching for safer, better-quality jobs. And the worst public health crisis in a century drags on, with the fear of new variants continuing to disrupt plans for travel and a return to normal workplace activities.
The city began December facing its fourth coronavirus variant since the deadly months of Spring 2020. The Iota variant (B.1.526) hit the city in the year’s first quarter, followed by Alpha. By late summer infections from the Delta variant were being recorded, but at a declining rate through October. Up to that point, each new variant brought lower infection and death rates than the previous year. Then on December 2nd, officials announced that tests revealed the first five cases of Omicron-infected people in New York City and Long Island. New Yorkers have also seen the prices of their goods and services rising, but at well below the national inflation rate (Figure 2). Over the 12 months through October, the overall urban CPI rose 4.3% in the New-York-New Jersey Metro Area – nearly two percentage points below the national figure. While local fuel and auto prices rose at close to the U.S. pace, prices on other important items like housing (+2.7%) increased more slowly than nationwide (+3.5%), likely constrained by the city’s rent regulations. When energy and food prices are subtracted, the 12-month inflation figure dropped to just 2.8% in NY Metro, compared to the national average of 4.6%
New York Metro Area Nowhere was the severity of COVID-19’s first wave or the effort to defeat it more pronounced than New York City. Thanks in part to requirements that all the city’s police, firefighters, public school teachers and other municipal workers get vaccinated or face unpaid furloughs, their vaccination rates leapt close to 90%. A new mandate requires religious and private school employees to get vaccinated by December 20th. Overall, 77% of the city’s population has now had at least one shot and one-fifth have received a booster.
If the city’s inflation remains below the national average, its unemployment rate is still far higher. From a pre-pandemic level of 3.4% in February 2020, local joblessness soared to 15.6% in April, then to 20% the following month. Low-wage workers have been hardest hit of all, both by the virus and the job loss it created. Unemployment has been cut in half since then, but by September 2021 it was still 9.8% – double the national average (Figure 1). Jobless rates dropped for all major racial/ethnic groups. But, as 6
Figure 4 shows, at 11-12% unemployment today, Black and Hispanic joblessness still far exceeds that of white or Asian New Yorkers.4
year – 80% fewer than pre-pandemic. And that was before the Omicron variant raised new restrictions and fears among travelers.
The city gained a total of 145,000 more jobs over the 12 months through this September – a 3.6% growth rate that was half a percentage point slower than the national average. (See “Latest Trends” tables below.) The private sector notched up slow but steady growth every month from December 2020 through August 2021, before losing 13,000 jobs this September (Figure 3). Leisure and Hospitality led the job gainers, adding 71,800 new jobs (a jump of +30.3%). Business and Professional Service jobs grew by 7,400 (+4.7%) and Education and Health Services by 4,400 (+3.5%). Government jobs shrank by nearly 17,000 (-2.8%), largely due to the end of temporary federal Census 2000 positions (-13,400).
Large employers like Facebook have delayed plans to welcome thousands of employees back to their offices. New York’s 1.5 million office jobs, mostly in Manhattan, accounted for over 37% of all the city’s employment and two-thirds of its gross output in 2020. The pandemic has so far cut the number of office jobs by only 5.7% – barely half the city-wide decline – thanks to their greater opportunities for telework. But that has resulted in an 18.3% office vacancy rate, “a level not seen in over 30 years in New York City,” according to a report by the state comptroller’s office.5 The damaging ripple effects are still being felt by the many small restaurants, cafes, tech suppliers, maintenance companies and other businesses who long serviced those now-empty offices.
Why is New York still lagging behind the national rebound? The city’s hopes of a broad-based September revival in its important tourism and entertainment industries were dashed by a late-summer surge of Delta variant infections. In August, the mayor began requiring all restaurants, gyms and indoor entertainment spaces to limit entry to patrons with proof of vaccination. Though movie theaters and some Broadway and Off-Broadway plays have reopened, few are drawing full houses. Trade shows, like the 10-day International Auto Show at the Javits Center, are again being postponed and conferences switched from in-person to online. The U.S. only officially reopened its borders to vaccinated foreign visitors on November 8th. The city’s tourism office forecast only 2.8 million international tourists would visit New York by the end of the
Economic Prospects Where is the economy headed in coming months? Much depends on the progress of vaccinations nationwide beyond today’s 70% of the population and on the course the disease takes in coming months. It also depends importantly on the determination of workers, organized and unorganized, to keep pressuring employers for better pay and working conditions. That would be greatly helped if the Senate overcomes fierce GOP opposition to pass the Protecting the Right to Organize Act. (PRO). As in Canada, it would allow more workers to conduct organizing campaigns and add penalties for companies that violate workers' rights. Beyond that, the Biden administration is banking on three major fiscal initiatives to restore short-run and long-run growth in GDP and 7
pressures.” 7 This view is based on its help for average Americans to deal with rising inflation by lowering their out-of-pocket costs for current healthcare and childcare needs, through establishing universal prekindergarten, cutting Affordable Care Act premiums and lowering drug prices by allowing Medicare to negotiate with pharmaceutical companies.
Gregory DeFreitas is Professor of Economics and Director, Center for the Study of Labor and Democracy, Hofstra University. REGIONAL LABOR REVIEW, vol. 24, no.1 (Fall 2021). © 2021 Center for the Study of Labor and Democracy, Hofstra University
funds will be allocated gradually on a case-by-case basis and will ease supply-chain bottlenecks, the new law could be a long-term boon to inflation-fighting efforts. Cost estimate over next 10 years: $1 trillion. health and other costs, as well as to fund child care providers; • Child Income Tax Credits extended to 93% of children and benefits increased to $300/child age 5 & under, $250/child ages 6-17. For example, a single mother with income under $112,000 raising two young children could qualify for $7,200/year (paid monthly, to ease cash flow), plus SNAP and Medicaid. • Cost estimate over next 10 years: $1.9 trillion.
jobs: the American Rescue Plan; the American Infrastructure & Jobs Plan; and the Build Back Better Plan. Congressional Republicans have so far this year shown near-unanimous opposition to these Democratic efforts. But the first two squeaked through the divided Congress, and the third has been passed in the House and now awaits Senate action. American Rescue Plan: In mid-March, the White House won passage of funding to buoy individual incomes, reopened businesses and state/local government budgets. The stimulus legislation President Biden signed into law provided: • Direct one-time payments to eligible households of up to $1400/adult and $1400/child (phased out as income rises above a threshold level); an Unemployment Insurance Supplement of $300/week from the federal government, on top of state UI benefits, until Sept. 6, 2021; Pandemic Unemployment Assistance, temporarily extending UI temporarily to freelancers and independent contractors; • Emergency Rental Assistance Program adding $25 billion to state/local govt. funds to aid high-need households struggling with rent and utility bills; • Paycheck Protection Program (PPP) extended with loans to small & medium-size businesses, plus tax-exempt nonprofits for applications through March 2021; • Higher Educational assistance to colleges and universities (increased to $39.6 billion). • State & Local Fiscal Recovery Fund of $350 billion to state, local and tribal governments to cover pandemic-related public
Infrastructure Investment & Jobs Act: On November 15th, President Biden signed into law this ambitious plan to clear much of the backlog of needed improvements to: • roads, bridges, trains, public transit, ports • the electric power grid; • access to broadband internet; • replacement of dangerous lead water pipes; and • access to electric vehicle charging stations. Though pared back to under half its original size to win 18 GOP senators’ support, the law will increase federal infrastructure spending as a share of the economy by half over the next five years, nearly matching the long-lasting infrastructure provisions of the New Deal. The administration promises to: “create good-paying, union jobs to build a modern and sustainable infrastructure, deliver an equitable clean energy future, and put the United States on a path to achieve net-zero emissions, economy-wide, by no later than 2050.” 6 In New York, Gov. Kathy Hochul says that the state’s share of funding would help avoid price and service changes to New York City’s buses, subway and regional commuter rails. And because the 8
NOTES 1 U.S. Census Bureau, Business Formation Statistics: October 2021 (11/10/21): www.census.gov; Casselman, Ben, “Start-Up Boom in the Pandemic Is Growing Stronger,” NY Times (8/19/21). 2 US Bureau of Labor Statistics, “The Employment Situation: October 2021,” (11/05/21) & “The Employment Situation: November 2021,” (12/03/2021): www.bls.gov. 3 Smialek, Jeanna & Alan Rappeport, “Watching Inflation Like a Hawk, Fed Might Cut Economic Aid Faster,” NY Times (11/30/21). 4 NYC Office of the Comptroller, New York By The Numbers: Monthly Economic & Fiscal Outlook (Nov. 2021). 5 NYS Office of the Comptroller, The Office Sector in New York City (Oct. 2021): www.osc.state.ny.us/files/reports/osdc 6 White House, “The Biden-Harris Administration Immediate Priorities,” retrieved 12/03/21: www.whitehouse.gov/priorities 7 “Open Letter from Nobel Laureates in Support of Economic Recovery Agenda,” www.epi.org/open-letter-from-nobellaureates-in-support-of-economic-recovery-agenda.
Build Back Better Act: Also in mid-November, the House passed this major expansion of the social safety net. If it prevails over GOP opposition in the Senate, it aims to provide: • universal pre-K for all 3-and-4-year old children; • reducing the cost of child care; • expanding the child tax credit and earned income tax credit; • allowing Medicare to negotiate lower drug prices; • construction/rehabilitation of over 1 million affordable housing units; • tax credits for electric vehicles and green energy residential equipment. • Cost estimate over next 10 years: $2.2 trillion. How will the White House agenda be paid for? Funding will mostly come by raising taxes on corporations and high earners, which would begin to shrink budget deficits in the 2030s. These include: a minimum 15% income tax on profits of large corporations, a 1% tax on corporate stock buybacks, an income tax surcharge on taxpayers with incomes of $10 million or more, Administration officials have said tax increases would fully offset the jobs and families plans over the course of 15 years, which the budget request backs up. In the meantime, the budget deficit would remain above $1.3 trillion each year. Against claims that these policies would stoke inflationary fires, a public letter from 17 Nobel Prize- winning economists counters that: “Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease longer-term inflationary 9