COVID-19 & labor markets
What are the implications of unprecedented employment disruption?
Beyond the health ramifications and tremendous loss of life, the coronavirus (COVID-19) pandemic has caused an unprecedented disruption to the U.S. labor market.
In April 2020, the unemployment rate jumped to nearly 20%, according to the Bureau of Labor Statistics (BLS)—the highest level since the Great Depression—meaning one in five people looking for work couldn’t find a job.
Although the effect of the pandemic on employment is certainly secondary to its impact on our physical well-being, a significant body of research shows that losing a job is one of the most impactful life events, often leading to increases in depression, foreclosure and eviction, hunger, substance abuse, and domestic violence.
Fortunately, the U.S. labor market has improved dramatically since April, with the unemployment rate falling to 6.7% as of December and vaccines beginning to disseminate across the country. Nonetheless, the virus continues to spread, and employment growth is slowing while prospects for future job losses increase dramatically.
Moreover, the long-term effects of the pandemic on employment remain unclear. Industries that cater to consumers online and via mobile technology have flourished while those reliant on in-person customers have struggled. Meanwhile, women and people of color have been particularly impacted.
How quickly will the labor market recover in 2021? And how might the pandemic affect different sectors of the workforce in the long run? Credit unions need to be aware of the pandemic’s short- and long-term effects on their employees and members and be flexible and creative in responding to their changing needs and preferences.
Industries affected differently
In November, the U.S. labor market continued to improve with the creation of 245,000 new jobs and the unemployment rate falling from 6.9% to 6.7%.
However, the pace of improvement was significantly slower than in previous months. In October, the unemployment rate fell a full percentage point from 7.9% to 6.9%.
Industries that have been particularly hard-hit tend to rely on in-person shoppers, travel, or tourism, such as leisure and hospitality, which is down 3.4 million jobs since February.
This also includes food service, which has 2.1 million fewer jobs. Education and health services lost 1.3 million jobs, and retail remains down 550,000 jobs.
However, other sectors that are better able to transition to remote work have fared relatively well. That includes financial services, which has lost only 7,000 jobs since the start of the pandemic.
In fact, while total U.S. nonfarm employment declined by 10.2 million during the first nine months of the year, both credit unions and banks increased their number of full-time employees: Full-time employment at federally insured credit unions grew by more than 1,000 jobs since the start of 2020.
Certain states have also fared well, such as Iowa, Nebraska, Vermont, and South Dakota, which all have unemployment rates at or below 3.6%. Meanwhile, states that rely on tourism and in-person entertainment are experiencing unemployment rates that are three or four times as high, including New York (9.6%), Nevada (12.0%), and Hawaii (14.3%).
NEXT: The ‘she-cession’
With the 2001 and 2008-2009 recessions, it took well over three years to recover all of the jobs lost—more than six years with the Great Recession.
Early on, there was hope the 2020 cycle would be “V-shaped” and the economy would recover relatively swiftly, perhaps in less than a year. Early on, it appeared the cycle was conforming to a quick turnaround.
Since then, the pace of recovery has slowed considerably, now forming more of a Nike "swoosh" shape, with a steep downturn and a gradual uptick. At November’s pace of job creation, it would take 29 more months to return to the February level of employment, or about three years in total.
Nonetheless, the unemployment rate is an imperfect measure of the labor market as it only considers people who are actively looking for work. Millions of Americans have left the workforce altogether.
In November, the share of prime working-age Americans (ages 25 to 54) registered at 76.0%, down from 80.5% in February. The overall labor participation rate was just 60.5%, down from 63.4% in February and the lowest level since the early 1970s when far fewer women were in the workforce. This represents about 3.7 million fewer jobs compared to February, BLS reports.
There are several likely reasons why so many people have left the workforce. For one, many parents—particularly women—have decided or were forced to stay home and care for their children as day cares and schools have closed or transitioned to virtual learning. Also, many older baby boomers who were nearing retirement have decided to simply retire early.
Others may have compromised health and prefer to stay home out of fear for their physical well-being, even if it means being out of work. Yet others may have given up on looking for work altogether, discouraged by a poor labor market.
Since September, the number of Americans unemployed for more than 27 weeks rose by 1.5 million people. As short-term temporary unemployment becomes permanent, many people become discouraged and give up looking for work altogether.
It also becomes significantly harder for the long-term unemployed to return to work as skills become outdated, and they may succumb to depression or addiction.
The impact of the recession on women has been particularly poignant, leading some to refer to it as a “she-cession.”
Typically, during recessions, the male unemployment rate rises significantly higher than the female unemployment rate as men often work in more vulnerable sectors, such as construction and transportation. During the Great Recession, for example, men were unemployed at an 11.1% rate versus a peak of 9.0% for women.
However, this is the first recession since the 1970s in which women have faced a significantly higher rate of unemployment. In April 2020, the official unemployment rate for women reached 16.2%, compared to 13.5% for men.
Moreover, significantly more women have left the workforce compared to men. From August to September, among the 1.1 million people ages 20 and over who left the workforce, more than 800,000 were women.
Although the reasons for this dramatic decline in female labor force participation vary, most economists agree the closure of schools and day care centers has disproportionately affected women, both as teachers and parents.
Female workers are overrepresented in education, and mothers are significantly more likely than fathers to stay home with their children to oversee child care and virtual learning.
Recent Census data highlights inequities in the household: 25% of children under age 15 living in married-couple families had a stay-at-home mother, compared to 1% who had a stay-at-home father.
Moreover, the gender pay gap exacerbates this issue. Typically, if households have to choose a parent to stay home with the children, it is the lower-wage earner, which is most often the mother.
Despite some recovery, the percent change in employment since the start of the pandemic for women (-6.9%) remains significantly below that of men (-6.0%). These disparities are particularly large for women of color: the labor force participation rate for prime-age Black mothers fell 6.7% from February to October, more than three times the decline among white women (1.9%).
NEXT: Long-term changes
While it is difficult to estimate, the pandemic is likely to cause longer-term structural changes to the U.S. labor market in addition to these short-term effects, depending on COVID-19’s severity and length.
For instance, the pandemic recession may accelerate longer-term trends toward the decline of retail stores, restaurants, movie theaters, and shopping malls, as well as the increase in online shopping and food delivery services.
Schools and universities have also closed, forcing teachers and professors to quickly adapt to online and remote technologies. This will likely accelerate the transition to remote and virtual learning at institutions of higher learning.
Factories and other businesses may also be incentivized to implement labor-saving technologies if workers can’t safely come to work in person for extended periods. For example, retail and grocery stores, restaurants, coffee shops, and cafes might provide more self-service kiosks or mobile ordering apps instead of exposing workers to COVID-19.
Once customers get used to these new technologies, many will continue to use them in the long run.
The financial services industry will likely see increases in the use of mobile, online, and drive-thru banking and a reduction in the number of physical branches. Although credit unions have been expanding their branch networks over the past decade, some are rethinking their need for expansive branch networks and are reimagining how branches may function in a post-pandemic economy.
For instance, now that more members are used to mobile and drive-thru banking for everyday transactions like deposits and withdrawals, branches could focus more on personal attention to members, such as reviewing loan applications, answering questions for members who prefer to meet in person, getting to know new members, and providing specialized financial education and financial literacy classes.
Remote work here to stay
These longer-term changes are perhaps most dramatically apparent in the rise of remote work since the start of the pandemic. A recent study by Dallas Federal Reserve economists estimates 35% of the labor force worked entirely from home in May 2020, up from just 8% in February.
In its September poll, Gallup estimated that 33% of workers worked remotely full time and 25% worked remotely at least part of the time. In other words, more than half of workers were working remotely at least part of the time in September 2020.
Moreover, about two-thirds of these workers want to continue to work remotely for the foreseeable future, and 35% prefer to work remotely even after the pandemic ends.
Global Workplace Analytics predicts that 25% to 30% of the workforce will continue working from home after the pandemic.
They cite various reasons for this, including a strong preference among young workers for flexibility and at-home work; fewer concerns about work-from-home arrangements among managers and executives; and increased awareness of cost-savings opportunities for both employers and workers who can save thousands on office space and transportation costs—and from the flexibility to move to less expensive areas.
The transition to remote work has accompanied another major change in the American workforce: an exodus from expensive urban centers by both companies and workers.
For example, Oracle, Hewlett Packard, and Tesla all announced they would move their headquarters from the Bay Area to less expensive locations in Texas.
According to data from LinkedIn, San Francisco and New York—two of the three most expensive cities in the U.S.—experienced the nation’s highest rates of population decline during the pandemic. Outbound moves from the Bay Area rose 8% from May to September 2020, and 7% in both New York and Seattle metro areas.
These workers are moving to less expensive parts of the country, such as Austin, Texas; Nashville, Tenn.; Phoenix, Ariz.; and Tampa, Fla.—the four cities that experienced the largest population increases during that period.
Although these trends may slow or even reverse as the pandemic recedes, the scars of the urban exodus will likely remain, such as the thousands of small businesses that rely on frequent foot traffic in urban areas and which have now permanently closed.
The credit union impact
As is often the case, structural changes to the economy create both challenges and opportunities. Credit unions must adapt to the shift in demand toward mobile banking and remote work while also finding innovative ways to support struggling members and employees.
Fortunately, credit unions are rising to the challenge. CUNA surveys show that roughly 80% of credit unions have created new loan products to meet members’ pressing needs during the pandemic, nearly 95% have offered loan modifications, more than 90% have waived fees, 62% have enhanced drive-thru transactions, 63% offer flexible work schedules, and about half have enhanced their mobile app capabilities.
The resilience and creativity of the U.S. economy extends beyond credit unions. Many companies and workers are adapting quickly, and there are promising signs for the labor market in 2021 and beyond.
Both Moderna and Pfizer COVID-19 vaccines are shown to be 90% to 95% effective and will likely be available to the general public by the middle of 2021.
Moreover, a new round of economic stimulus made its way through Congress in late December, with the potential for further stimulus under President Joe Biden in early 2021.
A survey of economists by The Wall Street Journal estimates the unemployment rate will fall to 5.6% by year-end 2021 and 4.8% by the end of 2022.
Although still elevated relative to the 50-year low of 3.5% in February, this would mark a relatively robust recovery for a recession that many predicted would turn into another depression.