US labor force employment grows and grows. 60M employed in the very glorious 1950’s. 80M by the end of the dynamic 1960’s. 100M by the end of the transforming 1970’s. 120M by the end of the conforming 1980’s. Not quite 140M by the turn of the millennium (2M shy). Just 140M at the end of the “oughts” decade. 158M before the pandemic, resuming the 20M new jobs per decade record of the sixties, seventies, eighties and nineties in the teens decade.

That is 100 million net new jobs added in my lifetime. 160M, up from 60M.

We have two sources, a payroll survey and a household survey. They both tell the same story.

A once in a century pandemic? No problem. 27 months later, total employment has been recovered, despite a 20M worker decline! Set aside politics. This is an amazing result for the US labor market, businesses and citizens.

US economy continues to add about 400,000 jobs each month. This is almost 5M jobs per year, more than twice as fast as the usual 2M jobs per year in recent history.

The labor force participation rate for prime aged individuals (25-54) increased from 65% to 84% between 1950 and 1990 as women were accepted into the labor force. 84% was maintained for a decade and 83% for the next decade. The teens decade saw a decline to 81%. The market has remained in the 81-82% participation rate range.

New hires averaged 5M per month in the slower growth “oughts”. New hires dropped further to just 4M per month after the Great Recession. New hires slowly built up to a new record level of 6M per month before the pandemic arrived. The pandemic had just a minor impact on new hires, with a record 6.5M new employees being hired each month in late 2021 and 2022.

Voluntary quits averaged 2%, 1 in 50 employees, during the first decade of the 21st century. Quits dropped sharply to just 1.4%, just 1 in 70 employees, in the 3 years afterwards. The quit rate slowly returned to “normal” by 2016 and climbed further to 2.3% as the economic recovery continued for a full decade.

By October, 2021 quits had returned to the solid pre-pandemic rate of 2.3%. The quit rate jumped up to 2.8% by April, 2021 and has remained at this historically high rate.

Job openings averaged 4M before the Great Recession. They dropped below 3M during 2009-13. They increased to 5M in 2014 and to 6M by 2016. They remained at the 6M level during 2017, before climbing to 7M for 2018-19. By Jan, 2021 job openings had recovered to 7.2M. By October, job openings had increased to a historic 11M and have remained at this unprecedented level.

This is a greater than 50% increase in open positions since before the pandemic, just 29 months ago. This is 120% more than the peak level before the Great Recession.

Most Important Measure

Profit maximizing businesses, managers and HR departments work through internal processes to list/post a job opening only when:

1. It’s within the annual financial and headcount budget.
2. Hiring managers conclude that current staff are unable to serve current demands from internal and external customers.
3. Hiring managers and financial analysts believe that the incremental hired employees will generate incremental measurable profits.
4. Hiring managers believe that they can hire new staff using existing processes to fill well defined positions.
5. Hiring managers believe that it is worth their time to go through the firm’s hiring process.
6. Hiring managers cannot find an “adequate” labor source through stretching existing staff or using temporary, contract, supplier or agent work forces.

11M job openings means that firms believe that they can generate material incremental profits by hiring up to 11M new employees.

11M open jobs is a startling number, but the ratio of unemployed persons to open positions is much more important. The Great Recession created a 6 applicants per job market. This declined to 2:1 in 2014. During the historic extended expansion it declined to just below 1:1, an unprecedented low number. The ratio fell below 1:1 in 2021 to the current 0.5 level. Two open positions for every unemployed job seeker.

Unemployment was quickly driven to the pre-pandemic record low of 3.5% this summer. Unemployment was below its usual minimum of 5% for 5 years just before the pandemic, leading most economists to recalibrate the “non-accelerating inflation rate of unemployment” (NAIRU) down to 4% or slightly below. This is a very efficient labor market.

Real (inflation-adjusted) wages have reflected this labor market situation. They remained at the $335/week level from 2000 through 2014, reflecting the slow growth of employment and GDP. Wages began to raise in real terms in 2015, reaching $360 by 2019, a 7.5% real increase. Wages were growing rapidly just before the pandemic and climbed to $390/week in the second quarter of 2020, an additional 8% increase in a few months. Real wages have since declined back to the $360 per week level as high inflation has offset higher than usual nominal wage increases. Firms have chosen to live with 11 million open positions rather than increase real wages.

Summary

Firms have 11M open positions that they believe will help them to make greater profits. Real wages are the same as they were just before the pandemic started. Firms have chosen to not increase hiring and regular wages any faster because they judge that this will cost them more profits than allowing 11M positions to remain unfilled. This is the first time in at least 50 years that firms have had to manage a labor market where employees and applicants have some market power. Despite this “standoff” in the labor market, total employment is back to the pre-pandemic level, firms are hiring record numbers of employees and labor force participation is recovering towards the pre-pandemic level, which was at a 10-year high. The overall economy has clearly slowed its growth rate to near zero, but the labor market remains in a very positive state for workers.

For each comparison, I’ll focus on the pre-pandemic Feb, 2020 numbers, the effective bottom rate in Jun/Jul, 2020 and today’s rate at May, 2022, about 2 years later.

The overall labor force participation rate dropped by 2 points from 63.4% to 61.4% and has recovered about half-way to 62.3%.

While many hope for a faster recovery, this 1% increase in 2 years is faster than from prior recessions. It is also taking place in the context of a long-term decline from 2000 to 2015, followed by a plateau and a bit of an increase in 2019 as the recovery from the “Great Recession” moved into a record length with record low unemployment.

The Hispanic rate generally followed the overall rate since 2000. However, the rate increased by a full 2 points in 2019. Hispanic labor force participation encountered a larger drop of almost 3 points, but has recovered one-half of the decline.

The Asian LFP rate follows the same general decline and flattening, with a somewhat higher rate in 2018-19 than the minimums from 2014-16. It dropped a little less than the overall average during the pandemic, by 1.7% and has fully recovered to the pre-pandemic level!

Black Americans showed the same general decline after 2000 to a minimum of 63% in 2015, with a significant and maintained increase to 64% in 2016 and a further 1% increase in 2019. Black labor force participation fell by a little more than 3 points to just 60%. It quickly added 1 point and in the last 6 months has added 2 more points, returning to its pre-pandemic 11 year high!

The White rate followed the overall pattern, but remained at the 63% plateau through the middle of 2019 before inching up by one-half percent. The participation rate was 1.8% lower in Jun/Jul, 2020. It did not change materially through the 3rd quarter of 2021, and has since added 0.4%. The White rate has recovered only 30% of the lost participation rate.

Women had added about one point of participation between 2016 and the beginning of 2020. Their participation declined a little less than men, at 1.8%. Women were slow to return to the work force during 2021, but have now closed one-half of the gap.

The Male participation rate remained flat from 2014 through the end of 2019. Note that male participation has been declining for 70 years. 2.1% of men left the labor force by Jun/Jul, 2020. The return during 2020-2021 was slow. The more recent increase has 40% of the absent men returned to the workforce.

Black men did not see a major participation rate increase in 2019. They experienced a 2.6% decline from the pandemic, followed by a 1% increase in the next year and a dramatic improvement in 2022 to a participation rate above the pre-pandemic level.

About 1.5% of Black Women were attracted into the labor force in 2019. Their pandemic decline was a very high 3.9%. They have added 2.7% of participation, so are about 3/4ths recovered.

Hispanic men did not show a clear participation increase in 2019. Their rate fell by a large 2.8% in the pandemic. It has rebounded by 2%, so is about 2/3rds recovered.

An additional 3% of Hispanic women entered the labor force during 2018-19. Their participation rate fell by 3.3% and remained low through the third quarter of 2021. It has grown by less than 1%, leaving it at a one-fourth recovery level.

White men did not increase their engagement during 2019 and recorded a 1.8% participation decline. There has been no significant recovery at this date.

Looking at the long-term trend, it may be that the 2015-19 rates were just a “pause” in the long-term decline. This topic warrants a separate article.

A smaller percentage of White women were drawn into the labor force during 2019, less than 1%. Their participation rate declined by 1.4% by Jun/Jul, 2020 and by 2% total in mid-2021 before beginning to recover. They have recovered by one-fourth to one-third of their decline.

Teenagers were least impacted by the pandemic, returning to prior work levels in less than a year.

College age young adults added almost 2 points of participation during 2018-19. They dropped a stunning 5.3% during the pandemic. They have recovered a solid 2.8%, so are a little more than 50% back.

The 55 and older group didn’t add many workers in 2019. Their participation declined by 1.1% and then by 1.7% total during 2021. They have recovered about one-third of the maximum decline.

The prime age (25-54) work force participation rate dropped 3 points, from 84% to 81%, between 2000 and 2015 in periods often decried as “jobless recoveries”. This group added 2 points of participation during 2016-19 as the recovery was extended, jobs added and unemployment reduced to record lows. Participation dropped by 2.1% in the pandemic. It has recovered 1.5%, so it is about three-fourths back to the elevated pre-pandemic level. The monthly increase rate looks very solid.

Prime age men added almost 1% of participation from 2016-2019 before losing 1.5% in the pandemic. They have added 1 point of participation, so are two-thirds recovered.

Prime age women added almost 3 points of participation from 2016-19, but experienced a 1.7% reduction during the pandemic. They have added 1.4% to their participation rate, reaching 80% of total recovery to the high pre-pandemic level.

The even simpler ratio of employment to population shows a near total recovery in the prime age population. The steepness of the curve indicates that this will continue, at least in the short-run, even though the peak ratio was only 80.2%, 80.2% and 80.5% in 3 prior economic expansions. In 1999, the recent record was 81.9%.

Summary

From 2000 to 2015, the overall, male and white-male labor force participation rates declined by 4%, 5.5% and 5%. These rates bottomed out from 2016-18, with small increases in 2019. The recovery from the pandemic is fighting long-term trends that result in lower labor force participation (lower and later marriages, declining/flat pay for lower-skilled workers, increased disability claims, increased criminal, drug and alcohol records, social acceptance of not working, electronic entertainment options, etc.). Minority groups saw stronger 1-2% participation rate increases in the last years before the pandemic.

Hispanics, Blacks, teens and college students experienced pandemic dropout rates much higher than the 2% average from Feb, 2020 to Jun/Jul, 2020.

Overall, one-half of the decline has been recovered, but there are significant differences among the groups. Adults 55+ have remained close to their reduced rates. White men (a big share of the labor force) have made little progress returning to the labor force. Less than one-fourth of Hispanic women have returned. Two-thirds of the Hispanic male decline has been recovered. Three-fourths of the Black female gap has been closed. Teen participation has recovered (90%). Asian participation has fully recovered. Black male participation is above the pre-pandemic level.

The prime age group (25-54) has regained 1.5% of its 2.1% decline and the recovery trend looks solid in spite of the slower recovery groups.

Labor force participation has not increased quickly in prior periods. Based on the significant increases in the last 6-months, a continued increase in the participation rate through the end of the year is likely. I estimate that the pre-pandemic participation rate of 63.4% will be reached in the 1st quarter of 2023.