The labor market is barely and apparently very slowly starting to recover and employers are already claiming that they cannot find enough workers. The Washington Post reports of anecdotal evidence that employers in the restaurant industry, among others, supposedly cannot find enough people to work for them. Most of the labor market data, especially a marked slowdown in new jobs in April, tell a different story. Millions of workers still struggle to find a job and face massive financial hardship. There are no signs of worker shortages, but rather of a dearth of good jobs.
The latest jobs numbers show a gradually improving labor market that is still far from a full recovery. The total number of jobs grew by an unexpectedly small number of 266,000 in April 2021. This was far below the increase of 770,000 new jobs in March and 536,000 jobs in February. At the same time, the unemployment rate increased slightly from 6.0% in March to 6.1% in April 2021. Yet the total number of jobs was still 8.2 million short of the number of jobs in February 2020 and even further behind where the labor market would have been if it had continued to expand for all of the past fourteen months. And the employment to population ratio – the share of people who are working – among those 25 to 54 years old – stood at 76.9%, still down from the high of 80.5% in January 2020.
Just because things are slightly better than they were a few months ago, does not mean that the labor market has turned from famine to feast. The clearest sign yet that there are no widespread labor shortages comes from data on wage growth. If companies cannot hire people because there is a worker shortages, it would only be a shortage at current wages. There are obviously a lot of people out of the labor market or unemployed, many of whom would be willing to work at higher wages. Higher wages will entice workers, who are currently out of the labor force, to return to work since they can more easily pay for childcare, for example. Wage growth then should accelerate if employers are really facing worker shortages. But wage growth in general has slowed, in part because more low-wage workers are being rehired and in part because employers are not raising wages. Wages for production, non-supervisory workers, the vast majority of workers, were only 1.2% higher in April 2021 than a year earlier. Unless employers are boosting wages, they are not trying everything possible to fill jobs.
The data instead suggest that jobs are still hard to come by for many workers. Unemployment is still widespread, especially among some economically vulnerable groups. The overall unemployment rate of 6.1% in April is still well above its most recent low of 3.5% in February 2020. Moreover, many workers in groups that have suffered especially hard from the pandemic such as African-Americans and Latinos still have much higher unemployment rates. For instance, the unemployment rate for Black workers was 9.7%, that for Latino workers 7.9%, while that for White workers stood at only 5.3%. Too many workers, especially those hardest hit by the pandemic, still struggle finding a new job in this recovery.
Unemployment trends by race and ethnicity into spring 2021 further underscore this point. Over the course of the pandemic the differences in unemployment rates between Black and White workers, for instance, has widened. While the two rates were relatively close to each other at the start of the pandemic with 16.7% for Black workers and 14.1% for White workers in April 2020, Black workers had almost twice the unemployment rate of White works in April 2021 – 9.7% compared to 5.3%. In April, the unemployment rate for Black workers worsened slightly from 9.6% in March to 9.7%, while it slightly improved for White workers from 5.4% in March. Those workers harder hit by the pandemic and recession are also facing greater obstacles to getting new jobs.
Changes in the labor force participation rate are yet another sign of nonexistent worker shortages. The labor force grew by 430,000 in April 2021. As a result, the labor force participation rate stood at 61.7%, up from a low of 60.2% in April 2020. While the current rate is still well below the last peak of 63.4% in January 2020, the gradual improvements in recent months are a sign that workers are returning to the labor market as more job opportunities arise.
The labor market is still down millions of jobs and wage growth is meager affected by the pandemic. Moreover, the labor market recovery slowed markedly and unexpectedly in April. The truth of the labor market recovery is more somber than some imaginary story of worker shortages. The real policy challenge right now will be to return the labor market to its previous momentum.