Today’s jobs report was mixed at best. 

An overall reduction in the headline unemployment rate and some job gains across sectors cannot paper over the significant numbers of workers sitting out of the economy.

For a second month straight, the economy has missed job forecasts by a long shot signaling an even tighter labor market. Rising wages and ample open positions should be enough to propel sidelined workers back to the workforce, but other forces are at play. 

The numbers

Here’s a quick snapshot of the December labor market from the jobs report released today by the Bureau of Labor Statistics:

  • 199,000 jobs added
  • Total jobs increased by 18.8 million since April 2020, but are down by 3.6 million jobs from their pre-pandemic level in February 2020
  • Unemployment rate declined to 3.9 percent, still above the pre-pandemic 3.5 percent rate in February 2020
  • 6.3 million people unemployed, still well above the pre-pandemic level of 5.7 million
  • Unemployment rates for adult men (3.6 percent) and adult women (3.6 percent) declined
  • Labor force participation rate remained unchanged at 61.9 percent but is 1.5 percentage points lower than in February 2020. 
  • 5.7 million people were not in the labor force even though they currently want a job, some 717,000 people higher than in February 2020
  • Employment trended up last month but remain below pre-pandemic levels in a number of sectors: leisure and hospitality, professional and business services, manufacturing, construction, and transportation and warehousing
  • Over the past 12 months, average hourly earnings have increased by 4.7 percent– still not enough to keep up with 6.8 percent inflation.

The headwinds

This first jobs report gives us a good overview of the labor market in 2021. The big takeaway is that while we ended the year in a better position than we started it, we are not back to pre-pandemic levels nearly two years later. 

The labor force participation rate is still stubbornly below pre-pandemic levels. Nearly three-quarters of a million people want a job but are out of the workforce. 

There are significant headwinds to nudging sidelined workers back into the labor force. 

First, age. Millions of Baby Boomers are at or near retirement ages have called it quits. They are unlikely to return.

Second, children. Working parents, especially mothers, have had a tumultuous nearly two years as lockdowns and then protracted remote learning has upended traditional work schedules. 

We thought that remote learning was behind us, but the surge of Omicron Covid-19 cases late last year has once again prompted school officials to abruptly return to remote learning. 

While childcare may have been disrupted earlier in the pandemic, it has been less of an obstacle for working parents than most think. Childcare centers were quick to back online and to stay open to care for younger children. School disruptions have really been the wildcard making it challenging for working parents to secure full-time employment. 

Heritage scholar Rachel Greszler explained this well in a recent timely paper

… it does not appear that access to childcare is a new struggle. A May 2021 study by Jason Furman (former chair of President Barack Obama’s Council of Economic Advisers), Melissa Kearney, and Wilson Powell III found that childcare struggles have had little or no impact on the jobs recovery. The authors found that “despite the widespread challenges that parents across the country have faced from ongoing school and daycare closures, excess employment declines among parents of young children are not a driver of continuing low employment levels.” In fact, parents’ employment declined by 4.5 percent, compared to a 5.2 percent decline in employment among workers who are not parents of young children.

Third, Covid. Fear of getting sick still remains a concern for many workers, especially those who are older or have underlying health conditions and work in jobs with high levels of human contact from hospitality and leisure to retail to education. Widespread vaccine distribution last year went far in appeasing health concerns until the summer’s Delta variant and then Omicron. Health concerns may never fully disappear.

Fourth, federal policies. Stimulus checks, monthly child payments, rent moratoriums, and generous unemployment benefits had the cumulative impact of disincentivizing work. 

If Congress resurrects and passes all or parts of President Biden’s multitrillion-dollar Build Back Better spending bill, some of these incentives could return.

Positively, more workers have found flexible employment through freelancing and the gig economy as a means of supplementing or replacing lost income around chaotic schedules. 

Bottom Line

Media outlets and pundits have dubbed unemployment over the pandemic, the Great Resignation. Some find glee in workers walking off the job because they view it as a tilting of the scales in workers’ favor. 

Indeed, quit rates were at a record high last month in separate BLS tracking. With a near-record 10.6 million open jobs, unemployed workers have their choice of jobs. They can trade up for better pay, a bigger title, or more flexibility. 

There’s a tradeoff though. This tight labor market is driving wages higher. If employers must pay more to attract or retain staff, they will pass the increased labor costs along to customers in the form of higher prices. So the Great Resignation is feeding right into prices and this is a reason we are unlikely to see inflation slow anytime soon.