LABOUR MARKETS ARE WORKING, BUT ALSO CHANGING / THE ECONOMIST

Labour markets are working, but also changing

Labour markets have coped with covid-19 better than expected. But they have changed

The jobs numbers a year ago were grim. 

Unemployment across the rich world rose from 5% to 9% in April 2020. 

In America unemployment rose from 4% to nearly 15% in a month, such a rapid increase that some social-security computers broke. 

In its June 2020 forecasts, the oecd foresaw worse to come. 

If there were a second wave of covid-19 at the end of the year, it said, unemployment would reach 12.6% before inching downwards, but not falling below 10% until the second half of 2021.

There were good reasons to expect high unemployment to persist. 

Rather like the price of petrol, it tends to be quick to rise but slow to fall. 

Fifty years of data from America, Australia, Canada and Japan suggest that increases in unemployment happen 50% faster than declines. 

A worker can clear her desk in minutes, but searching, applying and interviewing for a job takes time. 

After recessions bosses are cautious about hiring new workers, as they want to be sure that business has genuinely recovered. 

Moreover, the pandemic turned out to be even more malevolent than the oecd predicted, with some countries experiencing three waves of infection. 

Yet unemployment across the club fell rapidly from a peak of 9% in the spring. 

By the end of 2020 it was 6.9%, half the level that the oecd had feared.

Some pundits fret that unemployment is now a poor guide to the labour market, because large numbers of people have dropped out of the labour force. 

Correcting this by assuming that everyone who has left the labour force really wants a job raises “true” unemployment by 1.5 percentage points. 

That is a big difference, but not enough to change the story of a labour market performing better than expected.

Using official data is tricky for another reason. 

In many places, including Australia, Japan and especially Europe, governments launched furlough schemes, under which people were counted as employed even though they were not working. 

There have been efforts to correct for this, including one by ubs, a bank, that analyses economy-wide working hours to estimate a “shadow” unemployment rate. 

Yet there is evidence of a bounceback. 

The Economist has adapted ubs’s methodology and finds that Europe’s shadow unemployment rate rose from 7% in 2019 to 20% in the second quarter of 2020, but fell to 10% in the third quarter and has probably fallen further since.

The idiosyncrasies of a pandemic-induced recession may explain why the labour-market recovery has been faster than expected. 

The rich world has got better at coping with lockdowns. 

Restaurants have found ways to offer takeaway and delivery services. 

Governments have allowed more low-risk activities, such as manufacturing and construction, to continue. 

Even under lockdown, demand for workers has been higher than it was when covid-19 arrived in early 2020.

The type of unemployment matters. 

Last spring the vast majority of unemployed Americans said they were “on temporary layoff”, meaning that they had been told there was no work for them but there might be soon. 

Returning to an old job is easier than finding a new one, speeding recovery. 

A big majority of individuals who left unemployment in May and June of 2020 returned to work at their previous employers, according to a paper in February by the JPMorgan Chase Institute. 

That corporate bankruptcies have been far lower than many people expected also means more workers had jobs to go back to. 

For many people who had to leave their jobs for good, labour-market “reallocation” has found them new ones. 

Although demand in leisure, hospitality and travel has plunged, the pandemic has created new needs, from contact-tracers to Zoom trainers. 

The boom in online shopping has similarly boosted demand for warehouse workers and delivery drivers.

The upshot is that jobs are churning. 

A recent paper by José Maria Barrero of itam Business School and colleagues finds that the rate of employment reallocation (a calculation that accounts for some firms creating jobs and others destroying them) in America is running at twice its pre-pandemic level. 

In mid-March 2021 American job postings on Indeed, a website, were 9% above the previous baseline. 

Reallocation in Europe has been slower, in part because furlough schemes have kept workers tied longer to pre-pandemic jobs, but it is happening. 

In 11 European countries total advertised vacancies fell by 50% in the financial crisis of 2007-09, but by only 25% during the pandemic. 

In Australia, which locked down hard but is now bouncing back, vacancies are an astonishing 20% above their previous level.

Extra demand for workers has in part been met by existing companies. 

But new firms have also entered the market to fill gaps. 

America has seen a burst of startups. In 2020, 1.5m firms that are likely to end up employing people were founded, according to official data, up by 16% on 2019. 

Other countries, such as Britain, Canada and France, saw a similarly big rise in business formation in the second half of 2020. 

A recovery with lots of startups tends to be more jobs-rich than one without, since young firms are typically quicker to expand.

Technology has smoothed reallocation. 

Compared with the recession after the financial crisis, job-search websites such as Indeed and Monster are now more widely used. 

This makes it easier for firms to find workers, and vice versa. 

Yong Kim of Wonolo, a platform for blue-collar workers based in San Francisco, says that in the early days of the pandemic many industries, including fulfilment centres for online deliveries, struggled with labour shortages, but his platform has helped people to fill the gaps.

The rich world’s job-market recovery still has a way to go. 

During the northern hemisphere’s winter the fall in unemployment has slowed, reflecting rising covid-19 cases. 

And much of the remaining joblessness is concentrated among the poor. 

In America, over 25% fewer jobs paid less than $27,000 a year in January 2021 than in January 2020, even as higher-wage jobs recovered. 

In Europe unemployment among people with tertiary education is marginally higher than it was before the pandemic, but a lot higher among high-school dropouts. 

Will vaccines allow poorer folk to find work again—or might they find it hard for years to come?

Consumer habits will partly determine the fate of low-wage workers. 

Even if the covid-19 threat passes entirely, people may be more homebound than they were, either because they are more risk-averse or because they are more often working from home. 

As a result, demand for the sorts of low-wage jobs that help people outside their home—such as serving staff, hotel workers or flight attendants—might be lower than it was.

Yet there is reason to hope that the pandemic will not turn people into hermits. 

In New Zealand attendance at restaurants, cafés, shopping centres and theme parks is higher than it was before the pandemic. 

According to OpenTable, a booking platform, in the first two months of 2021 the number of Australian restaurant diners was 65% higher than before the pandemic. 

Because borders are closed, Australians are spending more locally. 

“The martinis were so good,” reports one bon vivant in Sydney, “that we ended up not ordering wine with the meal. 

We just had seven martinis each.”

Even in Australia and New Zealand, though, employment is still somewhat lower than it should have been. 

And the jobless include many low-wage workers. 

The covid-19 shock elsewhere was larger, making it more likely that consumers’ preferences have permanently changed and some workers have lost habits that made them more employable. 

The coming wave of jobs will not catch everyone, at least not for a while. 

Yet it will be broader and more powerful than even optimistic pundits had predicted.