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Macro Minute

December 21, 2021

COVID’s Long Shadow on the Labor Market

The November employment report contained good news — but not for everyone.

One of the highlights was the drop in the unemployment rate to 4.2 percent from 4.6 percent the prior month. That takes the unemployment rate below September's median Summary of Economic Projections dot plot for 2021 year-end unemployment (4.8 percent), pointing to a labor market that is improving faster than the median FOMC participant expected in the fall. The unemployment rate is also below the Congressional Budget Office's estimate of the natural rate of short-term unemployment (4.5 percent), a point where labor market tightness can lead to upward pressure on wages and overall inflation.

"Employers in occupations that have seen many workers drop out may be asking the remaining workers to take unconventional shifts, work additional overtime, or pick up more job duties or technical skills relative to their pre-COVID-19 demands."

 

The impressive drop in the unemployment rate makes it tempting to cheer that the labor market is back to normal. However, looking at the breakdown of the unemployed shows that the pandemic is still casting a long shadow on the employment recovery.

The BLS calculates unemployment rates by occupation based on the last job a person held before becoming unemployed. Figure 1 shows the change in unemployment rates for selected occupations between February 2020 and November 2021. Unemployment rates remain elevated across several broad occupational categories. But unemployment rates for personal care services, food preparation and serving, cleaning and maintenance, and health care support workers remain much higher than pre-pandemic levels compared to the other occupational categories. The unemployment rate for personal care services workers remains almost six percentage points higher than the pre-COVID-19 rate.

Figure 1

What's going on? These workers may not have wanted to take a job in their previous field due to health concerns and could be looking for work in other fields. In addition, COVID-19 may have affected high-contact services occupations in ways that make it hard for some workers to return to work, such as irregular scheduling or extended hours that compete with other needs like child care.

This mismatch could also reflect changes in labor demand due to COVID-19. Employers in occupations that have seen many workers drop out may be asking the remaining workers to take unconventional shifts, work additional overtime, or pick up more job duties or technical skills relative to their pre-COVID-19 demands.

The ongoing rise of COVID-19 variants poses additional risks that employment falls back or that the recovery in jobs continues to be uneven. So while November's employment report does contain good news in the top line, things look very different from one occupation to another.


Views expressed in this article are those of the author and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

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