By Gwynn Guilford and Sarah Chaney Cambon
Since spring lockdowns were lifted, the demand for workers has
snapped back faster than many economists expected. Between April
and October the unemployment rate fell by more than half, to 6.9%,
undoing more than two-thirds of its initial rise.
But unemployment data overstates the health of the labor market
because the supply of people either working or looking for a job
has declined. The U.S. labor force is 2.2% smaller than in
February, a loss of 3.7 million workers.
The labor-force participation rate, or the share of Americans 16
years and over working or seeking work, was 61.7% in October, down
from 63.4% in February. Though up from April's trough, that is near
its lowest since the 1970s, when far fewer women were in the
The supply of workers and their productivity are the building
blocks of economic growth. A smaller labor force leaves fewer
workers to build machines and clean tables, restraining the
economy's long-term prospects.
"If we don't get all the workers back, we can never have a
V-shaped recovery," said Betsey Stevenson, economics professor at
the University of Michigan, referring to a quick and sustained
bounce-back after a sharp decline. "Everybody should be worried
about making sure that we don't leave workers behind," she
Many economists say it's too soon to conclude this year's
decline in participation is permanent. They note labor-force
participation usually falls in recessions. The lack of good-paying
job opportunities prompt many of the unemployed to give up the job
search, return to school or simply retire earlier than they had
planned. When labor markets tighten, rising wages and better hours
pull people back into the workforce. Heading into the pandemic,
labor force participation rates had improved; unemployment fell to
50-year lows and wages rose during the last economic expansion.
Many who have left the labor force had worked in low-wage
sectors like retail, hospitality and personal care services
disproportionately hit by the pandemic. Once the virus is
contained, many of those jobs and workers may return, boosting
Just a third of the increase in the number of people sidelined
from the labor force since Feb. 2020 say they still want a job but
are not now looking, according to the Labor Department.
Older workers who leave the labor force for good might mean
employers turn to hiring more younger workers at lower wages when
the economy recovers more broadly. But that's not the same thing as
the creation of new jobs, which is the engine of economic
Some economists say the extent to which participation revives
depends on how swiftly demand rebounds. Joel Prakken, chief U.S.
economist at IHS Markit, believes that the combination of falling
unemployment and the reversal of virus-related economic effects
will gradually restore participation to pre-pandemic levels.
The economy has already recovered faster than many predicted in
the spring, and advances in vaccine development suggest the
potential for a strong recovery as the health threat ebbs.
New applications for unemployment benefits declined last week, a
sign layoffs are easing but remain high. U.S. services businesses,
a key driver of economic growth, gained ground for the sixth
straight month in November, adding to signs of a continued
Nonetheless, some economists see three reasons the pandemic's
depressing effect on the labor force could linger. First, it
appears to have sped up some baby boomers' decision to retire,
shrinking the number of productive workers in the economy
prematurely. Second, it is forcing some parents of young children,
in particular women, to reduce their hours or stop working
altogether, which could make a comeback harder. Third, it is
falling particularly heavily on workers with less education and
skills. These workers often struggle to find well-paying work and
many drop out of the workforce.
Participation fell sharply after the 2007-09 recession and never
fully recovered. This partly reflected demographics as the first
baby boomers qualified for Social Security in 2008. The recession
dampened participation of "prime-age" workers, those 25 to 54,
which didn't return to 2007 levels until 2019, when the labor
market was strong. Lower participation reduced average annual
economic growth by 0.6 percentage points from 2009 to 2017,
according to S&P Global.
This recession appears to be speeding up retirements. In the
third quarter of this year, about 3.2 million more baby boomers
said they were out of the labor force due to retirement than in the
same period a year earlier, according to Pew Research. From 2011
through 2019, the number of retired baby boomers rose at a rate of
about 2 million annually.
Labor-force participation among workers aged 55 and over logged
in at 38.7% in October, down from 40.3% in February.
"It's always harder for older workers to find jobs when they're
pushed out," said Teresa Ghilarducci, labor economist at the New
School in New York City.
That's especially true for older workers who entered the
pandemic already in a vulnerable position. At the start of the
year, Karen Naranjo, age 65, was unemployed, networking at charity
events while preparing to look for a job at a nonprofit serving
homeless or at-risk youth that used her project-management skills.
But then the pandemic upended her plans.
Job prospects became slim, and she didn't see a pressing need to
compete with the millions of other Americans in desperate need of
work. The Chicago resident had enough savings to retire, thanks to
a buoyant stock market and years of preparation. The virus risk
also made returning to work less appealing.
In October, Ms. Naranjo completed a temporary job knocking on
doors for the U.S. Census' population count. Then she retired. She
now spends her days reading fiction books, growing vegetables and
knitting Christmas presents. Those, like Ms. Naranjo, who can
afford to retire but would rather remain an active part of the
workforce, still represent a contraction of the labor market.
Economists broadly agree that a smaller labor force constrains the
"I feel regret for the things that I'm not going to be able to
do," said Ms. Naranjo.
Studies of the 1918 flu pandemic suggest it reduced labor supply
by sickening or killing many prime-age workers, particularly men.
Covid-19 isn't having that effect: Deaths relative to total U.S.
population are much lower, and more concentrated among the elderly.
However the virus, especially at the currently elevated level of
infections, could discourage the return of older adults to the
Unlike previous recessions, this one is making it especially
difficult for parents, women in particular, to work because of
school closures and the loss of child care. Participation has
fallen much more for prime-age women than men, and even more among
those who are parents. Among mothers in this group with children
under 13 years old, it plunged 3.4 percentage points between
February and October, while dropping 1.4 for prime-age fathers,
according to analysis by economists from the Federal Reserve Bank
of Dallas. That compares with a 1.2 percentage-point decline among
prime-age adults without younger children.
Some 7 million adults said they weren't working because they
were home caring for children who weren't in school or day care,
according to recent U.S. Census survey data conducted in late
October and early November, up from around 6 million in May.
(Pre-pandemic data isn't available.)
With her first three children, Erin Stout, age 35, worked until
the day she went into labor, taking off at most four weeks after
their birth. By contrast, she hasn't worked or looked for work
since her fourth was born in August. "I think returning to work is
going to be very hard for me [because] I've been with my kids this
many months," she said.
After 13 years as a shift manager at Dairy Queen in Lexington,
Ky., Ms. Stout left in February for more fulfilling work at a horse
farm and, for a few hours a week, sewing at a rug repair shop. But
by late March, Ms. Stout was laid off from both jobs. She and her
husband, who had also lost his job as a cleaner, began receiving
unemployment benefits and focused on caring for their three
elementary school-aged children and preparing for their new
Though their finances have been strained since the federally
funded extra $600 weekly unemployment benefit ended in late July,
she and her husband are reluctant to look for new jobs soon because
they're worried about contracting the virus and sickening their
Ms. Stout said her husband will probably start seeking work in
January, as they near the point of exhausting their funds. Though
she may apply for part-time remote jobs, she finds the prospect of
more time at home increasingly appealing. "This is the first time
since my 10-year-old daughter was born that I've spent much time
with my kids. It's been nice for them and nice for me," she
Some economists worry that the pandemic's outsize impact on
women -- particularly working mothers -- could set back years of
gains in female labor force participation. The climb back could be
particularly difficult for prime-age Black mothers. Participation
for this group plummeted 6.7 percentage points from February to
Historically, women who dropped out of the workforce for a time
to care for children often struggled to return, unable to find a
job in their previous occupation or command the same wage, said
Stefania Albanesi, an economics professor at the University of
Others note the reopening of schools and the availability of
telework could ease the pressure on parents like Ms. Stout.
"Firms do need women. For example, more women than men have
college degrees," said Claudia Olivetti, economics professor at
Dartmouth College. The risk, she said, is that women are
disproportionately affected by the need to work fewer hours, and
end up earning less.
One of the biggest risks to the labor force is "scarring": that
unemployment permanently hobbles the ability of some people to find
work, especially those with less education.
The number of workers who said their layoff was permanent,
rather than temporary, rose to 3.7 million in October from 1.3
million in February. Such permanent job losers are more likely to
drop out of the labor force than those on temporary layoff, wrote
Stephanie Aaronson and Wendy Edelberg, economists at the Brookings
Institution, in a recent analysis. Once out of the labor force, it
can take a long time for such a worker to return even as the
economy improves. A labor-force dropout is someone who is both out
of a job and not looking for one.
Some economists attribute the lag in returning to work to the
erosion of skills, and employers' tendency to hire those who are
already employed or only recently lost their jobs.
David Deming, a professor of public policy at Harvard
University, said in weak labor markets, employers tend to rely on
broad educational credentials when deciding who to hire. "Let's say
you have a high school degree and worked as a bookkeeper, and your
firm closes. Without a credential, you can say 'Oh, I did all these
things' but it's harder to certify," he said. "You learned to do a
specific set of things but only some of those skills transfer."
This recession has been particularly hard on low-wage jobs that
often require in-person interaction in sectors like retail,
hospitality and personal care services. Many of those jobs should
return when the pandemic is contained, likely once a vaccine is
However, some jobs will permanently disappear, as new consumer
habits stick and as the coronavirus accelerates the shift toward
automation, virtual interactions, and e-commerce, said David Autor,
economist at the Massachusetts Institute of Technology.
These shifts will create new jobs, but the workers who left the
labor force won't necessarily be the ones to fill them. For
example, he said, demand for people to provide meals,
transportation, cleaning, and security for downtown office workers
may never fully recover if white-collar workers continue to work
from home after the pandemic recedes.
This may be similar to how, in prior decades, automation and
globalization crimped demand for workers executing routine tasks in
manufacturing, many of them less-educated, prime-age men. A dearth
of middle-skill job openings may have led to higher rates of
depression and illness and kept those men out of the labor force
for good, according to research by Didem Tüzemen, senior economist
at the Kansas City Fed.
Research by a team of economists at the University of Chicago,
the Federal Reserve, and Automatic Data Processing analyzing
real-time payroll data as of late June found individual companies
laid off their lowest-wage workers, keeping their higher-earning
That could translate to lower participation among lower-wage
workers in the longer term, since they struggle more to find steady
work, said Ms. Albanesi of the University of Pittsburgh.
"The economy is just about us -- what we as people are
producing," Ms. Stevenson said. "If we don't have the people, we're
not fully recovered."
Write to Gwynn Guilford at email@example.com and Sarah
Chaney Cambon at firstname.lastname@example.org
(END) Dow Jones Newswires
December 03, 2020 14:16 ET (19:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.