U. S. may evade jobless recovery if vaccines work
It’s a bold forecast that some say borders on fantasy: Wall Street banks and Federal Reserve officials see powerful employment gains over the next three years that evade the curse of past recessions. If they’re right, millions of Americans will leap back into the workforce as soon as vaccines against the coronavirus roll out. If they are wrong, the U. S. enters another socalled jobless recovery where payroll gains lag a pickup in economic growth and production.
The optimists, including Federal Reserve Vice Chair Richard Clarida, say this economic crisis is different because it was caused by something more like a natural disaster than a financial shock. Once the pandemic has subsided, pentup demand for services, entertainment, and even travel will unleash and companies will hire or rehire.
“The economy has turned out to be more resilient in adapting to the virus,” Clarida said in remarks to the Council on Foreign Relations on Jan. 8. “Most of my colleagues and I revised up our outlook for the economy over the medium term.”
The pessimists are more cautious, pointing to signs that this time around, many workers may drop out of the labor force and a huge swath of the jobs lost will never come back. That will force many to reskill or relocate, which can take years while the transition falls hardest on those with less income and education.
Lowwage workers are particularly at risk of being left behind, especially if they live in more rural areas, says Harvard Professor Raj Chetty.
“There are early signs of a potential jobless recovery from this recession that could be quite persistent geographically,” Chetty said at a conference earlier this month.
The latest jobs report Friday shows just how important controlling the virus is to future job gains. Nonfarm payrolls decreased by 140,000 from the prior month, while the unemployment rate held at 6.7%.
The weakness was concentrated in restaurants, bars and other businesses hit hard by fresh pandemic restrictions. Many of the 3.9 million longterm unemployed — those out of a job for at least 27 weeks as of December — are in these industries. The leisure and hospitality industry, for instance, makes up 22.6% of total longterm unemployment.
There are reasons for hope in this grim data, said Julia Coronado, founding partner at MacroPolicy Perspectives LLC.
“There is plenty of evidence in here that if we can get the virus under control and begin reopening, many of these jobs can come back,” she said, adding that she also worries businessstrategy changes could have a lasting impact on some service sector jobs. “The idea that we will flip a switch and have a frictionless recovery in the labor market seems highly unlikely.”
U. S. central bankers expect the unemployment rate to fall to 5% by the end of this year, to 4.2% in 2022, and 3.7% by the end of 2023. That would bring it in the vicinity of the jobless rate in February — of 3.5% — before the outbreak of the virus. Goldman Sachs Group Inc. economists are also positive on the jobs outlook. They expect the unemployment rate to dip to 4.8% at the end of 2021, and to be around prepandemic lows by the end of 2023.
One of the things they point to is the prospect for additional government support from the incoming administration of Presidentelect Joe Biden. He’s set to release his proposals on Thursday, and the broad outlines suggest it could provide a tailwind for employment gains.
Still, what’s unusual about these outlooks is that it just hasn’t happened that way in recent recoveries. Take the 200809 financial crisis. It took about eight years for the labor market to heal. After the 2001 recession, it was nearly six years before the unemployment rate closed in on prior levels.
Claudia Sahm, a former Fed Board forecaster who now runs her own firm, says policy should aim at a strong labor market recovery — but it won’t be easy.
“You can’t have malaise this long — we are still down 10 million jobs since February — and expect it to unwind this fast,” she says. “This is very different recession and there is massive uncertainty around everybody’s forecast.”