WASHINGTON — Friday brought some welcome employment news, with the economy adding roughly 560,000 new jobs in May, knocking the unemployment rate below 6 percent. Combined with the latest news about falling Covid-19 cases and increasing numbers of Americans getting vaccinated, many analysts are hoping for an economic boom this summer as a full reopening draws nearer.
But it might not be that simple. There are signs that a broader shift might be remaking the economy in ways that make it harder to see the road ahead.
Let’s start with this week’s job numbers. They were clearly a good sign overall.
The unemployment rate fell to 5.8 percent in May, compared to 6.1 percent in April. And compared to May of 2021, when the economy was still deep in its Covid-19-induced haze, the rate is down more than 7 points.
The unemployment number is still not down to its remarkably low pre-pandemic number of 3.5 percent, but the trend is good and 5.8 percent is not a terrible number for an economy that spent 2020 being pounded by a global pandemic. There is a real reason to feel optimistic about the May unemployment rate.
But the real story of the Covid-19 economy may be seen in a less-discussed number. While people tend to focus on the unemployment rate, that figure is based on the number of working-age Americans actually seeking a job (the number of people actively “participating” in the labor force), and that figure looks a lot different today than it did a year ago.
Overall, the labor force participation rate is down more than 1.5 points since the pandemic began (and the number didn’t really change from April to May). That might not sound like a lot, but remember we are talking about the total number of Americans looking for a job. That’s a pretty big pool of people and, in real terms, that drop reflects a decrease of about 3.5 million people.
The declining percentage is slightly higher with women, but both sexes have seen a dip, and the drop among both men and women shows how deeply rooted the change might be.
It’s not strange for labor force participation to drop during a recession. Workers get discouraged and leave the job pool. And labor force participation has been falling for decades as the nation ages. People eventually age out of the workforce and retire.
But the size and suddenness of this latest drop are both remarkable and the current figures are extremely low. Just how low becomes noticeable when you look at the historical trend.
The last time the labor-force participation rate was this low was more than 40 years ago, in January of 1977. That means the current labor force participation number is lower than it was in the tech bust or just after the Sept. 11 terrorist attacks or amidst the Great Recession.
Consider all the changes in the economy in the last 40 years. Of course, there was no Internet or smartphones but, more importantly, women were not fully integrated into the workforce yet in the late 1970s. When women fully entered the labor force, the participation rate rose sharply, by more than 17 points between 1960 and 2001.
In other words, the U.S. workforce is radically different today than it was in 1977, and the fact the labor force participation numbers are as low as they are might mean a serious economic change is afoot.
Some economic analysts argue that Covid-19 relief checks are discouraging people from work or that distance learning in grades K-12 is keeping some parents at home to watch their kids, and those factors may be playing some role in the numbers.
But the pandemic has also changed the way we do things, from more online shopping and food ordering to less commuting and theater visits. The net result of many of those changes was more automation and less personal interaction — fewer counter workers and waitresses, cab drivers and bartenders. In the May labor report, leisure and hospitality unemployment was still in double-digits.
The question is whether we are seeing long-term behavioral shifts or short-term alterations.
The way that question is answered will have a big impact not just on the number of people who are unemployed, but perhaps the number that is even looking for a job to begin with.