In the spring of 2020, as the virus was declared a global health emergency, work essentially stopped for many people, the unemployment rolls swelled by 23 million and the jobless rate reached 14.7%. Many people subsequently turned to remote work, and the workforce recovered but only to be plunged into three years of an incredibly tight labor market.
Today, the unemployment rate is at 3.9% following an increase in October from the prior’s month’s 3.8% level, and by most measures the labor market is considered very strong. The balance between supply of labor and demand from employers has returned to a level of normalcy, although there is still tightness in some industries and among some demographic groups.
“It does seem like the labor market is getting a little more balanced,” says Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments.
That’s the big picture but a look under the hood reveals how the labor market has changed – mostly for the better – more than three years from the great disruption caused by the pandemic.
The overwhelmingly takeaway is that the labor market has defied most predictions and shown a level of resiliency and adaptability that has surprised many observers.
“I am not surprised at how it bounced back,” says Bill Armstrong, president of recruiting at Safeguard Global, an international workforce firm. “But I am a little surprised at how resilient it’s been. Some of the changes are here to stay.”
Chief among those changes are the prevalence of remote work, the use of technology in hiring, and a greater flexibility to accommodate the needs and desires of workers.
Political Cartoons on the Economy
Remote Work Is Here to Stay
Perhaps the signature change of the pandemic, the percentage of workers who work fully remotely is estimated at about 13% by the government. However, private surveys find that number is substantially higher, closer to a third, while the number who work a hybrid schedule with some portion of the work week at home is found to be above 50%. Before the pandemic, 17% of workers were remote five days a week.
While many companies have instituted return to work policies, an overwhelming percentage of workers surveyed say they want the option to work remotely to some degree. Even as people do return to offices and other work locations, human resource firms say they expect around 20% of workers will still be fully remote in the years to come.
Technology workers dominate the remote work environment, followed by sales, marketing and finance jobs. At the other end of the spectrum are jobs that require a face-to-face presence, mainly in service industries like hospitality and health care. Younger workers aged 24 to 35 are those most likely to report working remotely full time.
Younger Workers Are Working
There is a misconception about young people and their work ethic. Indeed, this year has seen some of the strongest improvements in teenage employment with the employment-to-population ratios of those aged 16-17 and 18-19 at 23.6% and 43.6%, respectively. That’s up from 20.1% and 42.4% in the first 10 months of 2019.
“We’ve seen a remarkable rebound in teenage employment,” says Guy Berger, former principal economist at LinkedIn. “The 16- to 17-year-old group has seen a bigger increase in their employment/population ratio than any other age group!”
Economists are not exactly sure why there are more teenagers employed but likely explanations are that the post-pandemic period has seen more jobs available in sectors like hospitality, warehousing and transportation and in industries where younger workers are more common. Higher wages could also be contributing to the increase as many companies now offer higher hourly wages.
The College Degree Is Not as Important.
At online job firm Adzuna, positions that require skills and not specifically a college degree are increasing and many carry high salaries. The company says over 10,000 job openings offer salaries of more than $200,000 and they do not necessarily require a four-year degree.
“Emerging technologies are growing fast, making a degree less valuable than hands-on experience and knowledge,” said James Neave, head of data science at Adzuna. “We’re seeing workplaces transitioning to recognize skills in the same way they have traditionally understood degrees.”
Neave said that in September nearly 6,000 job ads were in the logistics & warehouse sector offering paychecks of around $200,000. And some of the largest employers are dropping the requirement that an applicant have a degree.
“Large U.S. employers including Walmart, General Motors and Google are doing away with college degree requirements for some corporate jobs,” Neave said. “Additionally, Minnesota joins the growing list of states eliminating four-year degree requirements for most state government jobs.”
“As this year goes on, we expect businesses will continue prioritizing skills over degrees to fill open roles, including those that come with top paychecks,” Neave added.
Women Are Back
There’s no question women fared badly during the pandemic. Many had to stay home, or cut back on work, to handle kids whose schools were closed as well as perhaps having to take care of elderly relatives. Sectors where women have traditionally been employed at higher rates – such as health care, education and hospitality – suffered the most from the lockdowns.
But that is in the past. Today, the employment-to-population ratio for women is at a record 75.3%. But there are interesting dynamics within the working women population.
“The biggest increase in employment has happened among women without a high school diploma,” says Berger. “Like teenagers, these women without a diploma have been beneficiaries of the sharp labor shortages in certain industries.’
Berger notes that the second best performing group is women with bachelor’s degrees or higher, while a middle group – those who have graduated from high school and may also have some college but lack four-year degrees – have underperformed the women’s group overall.
“It was really amazing to see a marked rise in participation in women with young children,” says Sarah House, senior economist and managing director at Wells Fargo’s corporate and investment banking group. Despite the impediments of finding child care, “these women are finding a way to contribute to the labor market.”
Men Are Doing Better But Still Lack Their Historical Strength
For men, it’s a case of glass half full or half empty. Men’s employment has recovered from the early days of the pandemic, with their employment-to-population level now at 85.9%. But that is just below the pre-pandemic rate of 86%. And if you go way back to the 1970s, that ratio was 90% or better.
Much of that reflects the overall improvement of women’s participation in the workplace. But it also is the changing nature of work and the economy, with a shift away from manufacturing to technology and services, jobs that are usually in an office or behind a desk. Increases in industries such as health care and leisure and hospitality, traditionally bastions of female workers, also account for the shift.
Retirees Are Still Retired
At the height of the pandemic, the number of retired Americans who otherwise might have been in the workforce stood at around 3 million or more. This was the “excess retirements” who were causing the labor market to be exceptionally tight. These were often workers who were at the prime earning levels with years of valuable experience.
Economists offered many reasons for the shortfall in available, seasoned workers. Obviously, COVID-19 proved more of a health threat to older workers, and many chose to take retirement or otherwise stay out of the workforce. Then, rising home prices and a strong stock market enabled some of these workers to be able to stop working earlier than planned.
Some, but not all, of those who left the workforce have returned. But, according to data from the St. Louis Federal Reserve Bank, the shortfall is still around 2 million workers.
But, as with women’s return to the workforce, there are some interesting nuances within the 55-plus group, Berger notes. The younger cohort has seen a recovery almost the same as prime-age workers, those 25 to 54. But the older retirees have not returned as much.
For the 10 month period this year, the employment-to-population ratio of 55 to 59-year-olds has increased to 71.9% from 70.9% in 2019. But for those 60-64, the ratio has risen to 56.6% from 55.9% four years ago.
Those even older, 65-69 or 70-74, have not recovered, with the former’s employment-to-population ratio actually down to 32.4% from 33.2% and 19% to 18.5%, respectively.
For the younger group, Berger says “the pandemic was just a temporary disruption in their careers. For older folks, there’s a mix of factors: disrupted careers leading to early retirement, rising asset prices, and probably lingering COVID impacts.”
Is it Sustainable?
While the labor market has performed a strong cyclical recovery from what was one of the most disruptive hits ever, there are structural forces that could keep the balance between supply and demand for labor tighter in the years to come. These include an aging population, lower birth rates and political opposition to immigration. That means some of the gains seen over the past three years could prove long-lasting.
“The demographic trend, the fertility trend, the stance on immigration, all of these point to you having a structurally tighter labor market,” House says.