Several positive economic developments characterized 2021. The economy is on the mend from its steep decline and massive job losses at the beginning of the pandemic. But, a lot of work remains to be done to maintain economic momentum and build a truly inclusive economy.
There are already signs of hope for a stronger, more inclusive economy emerging from the crisis. The data show an economy that has remarkably quickly recovered. And, those who often struggle longer in a recovery – people of color, those without a college degree, and disabled workers, for example — have not been left behind to the same degree this has happened in past recoveries. Unlike prior recoveries, inequality is at least not widening. A lot more work needs to be done to truly create an economy that works for everybody. But, the economic trends of 2021 show that the country can move in the right direction, especially if Congress is focused on pushing forward towards faster growth and more equality.
This is not to say that many families are not still struggling. They are. They still feel the pinch from millions of missing jobs. Inflation, in particular energy and cars, is still elevated amid ongoing supply chain bottlenecks. Costs for childcare, health care and education, among other services, are high, although they are not rapidly increasing. Income and wealth inequality are still widespread, even as the economically most disadvantaged workers have seen substantial gains. Policymakers need to undertake further efforts to secure the momentum of the economy and to reduce economic inequality.
Economic growth rebounded. The economy gained renewed momentum in the spring of 2021, in large part as a result of renewed government interventions in the form of the American Rescue Plan. The economy quickly regained all of its lost output from the onset of the pandemic. By the second quarter of 2021, the economy was larger in inflation-adjusted terms than in the fourth quarter of 2019, just before the pandemic got under way. This was a remarkably fast turnaround within 18 months. In contrast, the economy reached its pre-recession level from the fourth quarter of 2007 again in the fourth quarter of 2010 – three years later – during and after the Great Recession.
More work needs to be done, though. Millions of people continue to look for a job and the economy could slow down. The resurgent virus in the form of the omicron variant creates massive uncertainty. The surge of the delta variant in summer 2021 already slowed economic growth and showed the economic toll the pandemic can take. The economy could take another hit as many workers become sick and need to seek care and quarantine, exacerbating existing bottlenecks. The risks from the ongoing pandemic are real and the economy could lose its momentum going into 2022.
Jobs made a comeback. The labor market added 6.1 million jobs through November 2021. This is a monthly average of 555,000 new jobs or the equivalent of an annualized employment growth rate of 4.6% for the first 11 months of 2021. This is a strong acceleration from the meager job growth of an annualized rate of 1.8% in the last three months of 2020. Then, the economy was in the grip of a massive winter surge of the virus while government assistance for many families had run out. A massive vaccination campaign and the American Rescue Plan helped put the economy back on stronger footing in 2021.
The labor market recovery is not done yet. The economy is still 3.9 million jobs short of where it was in February 2020, the last month before the pandemic. In the meantime, the population has grown and many are still looking for a new job. The employed share of those 25 to 54 years old, for example, was still 2.1 percentage points below its level in February 2021. The economy will need to retain its momentum well into the spring of 2021 to recover its position before the pandemic, never mind truly full employment akin to the late 1990s.
Households gained a financial cushion. Congress provided families with much needed financial relief in the form of direct payments. Many families, especially lower-income and moderate-income ones received stimulus checks, officially known as Economic Impact Payments (EIP). Many families with children also got added advanced Child Tax Credit (CTC) payments from July to December 2021. These payments helped struggling families pay their bills, but also build up a financial cushion for future emergencies. The liquid savings of those in the bottom half of the wealth distribution grew by 13.4% in inflation-adjusted terms from $3,565 in December 2020 to $4,042 in September 2021, according to Federal Reserve data.
Many households will have to dip into these emergency savings as economic uncertainty persists. Continued economic growth and faster job creation could ultimately offset those risks. This will require additional legislative actions to boost investments in the most pressing areas such as childcare, health care, education and climate change, among other things. Such investments will contribute to faster long-term growth and less inequality.
Household wealth went up at all income levels. It is not just emergency funds that increased during 2021. Overall wealth also grew rapidly. Higher stock and housing prices together with additional financial assistance from EIP and CTC checks lifted wealth for many households. Total household wealth amounted to 795.8% of after-tax income on average in September 2021. This was an increase from 757.5% at the end of 2020. It is also the highest level on record, dating back to 1952.
And, it was not just the highest-income groups that saw wealth gains. Average inflation-adjusted per household wealth grew by 9.7% from $138,342 at the end of December 2020 to $151,769 in September 2021 for households in the bottom fifth of the income distribution. This was a larger gain than for households in the second fifth (6.1%), the middle fifth (3.9%), the fourth fifth (5.3%) and the top fifth (5.1%) during that same time.
Yet, many households have continued to struggle throughout the pandemic. They have had difficulties building up wealth, especially if they did not own real estate or stocks. Typical or median wealth thus may show different trends from those for average wealth, which are skewed towards wealthier households. Policies to improve social insurance programs and lower costs for key items such as health care, childcare and education will be critical to provide households with real financial security.
Employment gains were especially strong for some of the economically most vulnerable populations. The most vulnerable workers such as those with less education, disabled workers, and people of color often see gains much later in an economic recovery than those with more education, non-disabled workers and White workers. This year was different. The overall share of employed workers grew by 1.8 percentage points from December 2020 to November 2021. In contrast, the employed share for disabled workers grew by 3.7 percentage points. Moreover, the employed share for Black workers went up by 2.8 percentage points, the one for Latinx workers by 3.7 percentage points, and the one for Asian workers by 4.5 percentage points, while the gains for White workers amounted to 1.5 percentage points during the first eleven months of 2021. Moreover, the employed share of people without a high school degree increased by 1.9 percentage points, the one for high school graduates by 1.6 percentage points, the one for people with some college by 1.6 percentage points and the one for people with a college degree by 1.3 percentage points. The faster job market momentum in 2020 benefitted especially some of the most vulnerable groups of workers.
These numbers only indicate that many workers are closing the gap to their employment levels created by the pandemic. But, those are also the groups of workers that typically saw the biggest job losses at the start of the crisis. And, massive inequities by race, ethnicity, disability status and education that existed before the pandemic still persist. For example, disabled workers had an employed share of 21.5% in November, far below the overall employment-to-population ratio of 59.2% at the same time. Disabled workers also had an unemployment rate of 10.5% in November 2021 or almost two and a half times the overall unemployment rate of 4.2%. Many workers will need the labor market momentum to continue to have a realistic chance of closing widespread gaps in job opportunities.
Wages for many low-wage workers outpaced inflation. Many workers could take advantage of high labor demand and find or switch to higher-paying jobs with wage gains that outpaced inflation. This was especially true in several low-wage occupations. Inflation-adjusted wages were up by 8.6% in hotels and restaurants from December 2020 to October 2021. Child care workers saw a wage gain of 2.5% during that period and wages in nursing homes just outpaced inflation with a gain of 0.3% during the first ten months of 2020.
Workers on the lower rungs of the wage ladder finally saw some meaningful wage gains. Those gains came after years and even decades without wage gains for many lower-wage workers. It will take concerted policy efforts to ensure that workers can maintain their wage gains and possibly continue to shrink the gaps with higher-wage workers. Such policy efforts will have to include higher minimum wages and more support for workers wanting to join a union.
More people had enough to eat. The share of people who often or sometimes did not have food to eat stood at 9.3% in October 2021, down from 13.2% in December 2020, according to Census data. Some of those struggling the most benefitted especially from a variety of boosts to their incomes, including EIP and CTC checks, but also accelerated wage and job gains.
Hunger, though, remains widespread. Almost one-in-ten Americans do not have enough to eat. And, this share has gone up somewhat since it reached its most recent low with 8.1% in August 2021. Millions of Americans will need to see more jobs and wage gains as well as efforts to lower costs in key areas such as childcare, health care and education to be able to afford basic necessities.
The economy of 2021 did remarkably well. The economic recovery gained speed and reached many economically vulnerable populations sooner than has been the case in previous recoveries. But, the work for policymakers is not done. They need to pursue the dual goals of securing the economic momentum and further reducing economic inequality on a consistent basis.