By Howard Schneider
WASHINGTON (Reuters) – The U.S. unemployment rate hit a record low of 3.5% a year ago, but that bit of history comes with a footnote.
It arguably was not the best overall time for workers in recent decades. That honor goes to the final months of 2000. Even though unemployment rates were a bit higher, wage growth was stronger and a significantly larger share of the population was either in a job or looking for one.
Graphics: Jobs: Nov. 2000 vs. Jan. 2020 – https://graphics.reuters.com/GREAT-REBOOT/DATA/xegpbewgrvq/chart.png
It was a particular moment, with a younger population and women still ramping up their engagement in the U.S. job market, and it is unlikely to be repeated in a country that is graying by the year.
As the effort gets underway to repair the hole carved in the job market by the coronavirus pandemic, understanding the differences between those two eras – one good, one even better – may be key to choosing the best policies to fix the damage and then judging when the task is complete.
“It is going to take a long time to get back to 2000, to the absolute best situation, if ever,” said Roberto Perli, an economist with consulting firm Cornerstone Macro. “It might be impossible,” thanks to a population skewing older and thus towards a lower share of people wanting to work.
Graphics: Labor by the numbers – https://graphics.reuters.com/GREAT-REBOOT/DATA/oakpeyydbpr/chart.png
To gauge how U.S. Federal Reserve officials might define their goal of “maximum employment” and assess how fast the economy might reach it, Perli recently constructed an overarching view of the job market combining 22 different statistics into a single index. It pinpoints the late 1990s through 2000 as the high mark for U.S. workers since 1990.
Fed officials say they want a “broad and inclusive” job recovery, noting that before the pandemic unemployment rates for Blacks and Latinos had set record lows along with the economy as a whole.
Graphics: Unemployment by race: distance from “best” – https://graphics.reuters.com/USA-REBOOT/DATA/rlgvdggrlpo/chart.png
If the aim is to return a broad set of labor metrics to their previous best outcomes, it won’t happen soon. Judging on how the index has behaved in the aftermath of other recessions, Perli said the process could take six to nine years. That’s a long runway for the Fed to keep interest rates low in hopes of encouraging hiring and wage growth.
Graphics: The jobs hole facing the U.S. – https://graphics.reuters.com/GREAT-REBOOT/DATA/bdwpkyngepm/chart.png
But the data highlight another challenge the Fed and other officials will have as they debate what the country needs. Is it, for example, more immediate support for people waiting on a former job to return? Or more retraining and relocation assistance to encourage people to move on?
“Maximum employment” may mean one thing if restaurants and movie theaters are on the verge of a vaccine-driven rebound. It means a less lofty endpoint and longer to get there if those jobs are gone for good, or if the occupations in demand after the pandemic are in different industries and different cities that force workers through a longer readjustment.
Work-from-home arrangements have proved popular for employees and employers, already prompting an exodus from cities like San Francisco. As one group of workers moves, the services and service jobs supporting them will need to follow.
Recent data from online employment site Indeed showed job postings in cities of fewer than 500,000 people are now 8% above their pre-pandemic level, while those in cities of greater than 2 million are 6% to 7% below.
Graphics: Job openings by city – https://graphics.reuters.com/GREAT-REBOOT/DATA/nmopaooxbpa/chart.png
BACK TO DISNEYLAND?
That kind of trend could prolong a full workforce recovery.
It will take time to know for sure, said University of Chicago Booth School of Business economics professor Austan Goolsbee. Given the peculiarities of the pandemic “the jury is still out” on how much the economy will have been changed by the last year.
People may have spent comparatively more money on goods than services during that time, but that’s because they could have one delivered safely to the door, while the other, be it haircuts or vacations, involved health risks.
That doesn’t mean barbershops are about to disappear.
“People for 100-plus years have been spending more and more of their time and money on leisure, entertainment, travel, tourism, health care and other services. This is the one and only moment that we have had that those things declined,” said Goolsbee, head of former President Barack Obama’s Council of Economic Advisers. “When the thing is done, there is a lot of demand to go back to sports events and go back to Disneyland and go back to traveling.”
The jobs should follow, potentially in fairly short order.
But recovery may not be all about seeing the local tavern packed again, or having a capacity crowd at the ball game.
Carlyle Group global head of research Jason Thomas estimated that of the roughly 9.5 million jobs still lost since the pandemic began, 4 million were not in hospitality, transportation and other industries in the coronavirus’ line of fire.
As those other industries such as financial services and manufacturing retool, rethink and automate, they may be slower to rehire – something the Fed and others will have to account for in defining what full employment means in the post-pandemic world.
“You get new lockdowns and lose 400,000 jobs in bars and restaurants, when they reopen those jobs come back,” he said. “You have this longer term issue of over 4 million jobs that are in those sectors that are unimpacted. How fast do they come back?…How much is structural and how much is temporary and is going to revert?”
(Reporting by Howard Schneider; Editing by Dan Burns and Diane Craft)