Analysis by Betsey Stevenson and Benny Docter
Contact: Jeff Karoub, [email protected] Benny Docter, [email protected]
Employers added 517,000 jobs in January 2023, capping a year marked by record low unemployment and high job growth. The unemployment rate fell to 3.4%, a low last seen in 1969. This month’s employment report is particularly complex because the release includes an annual update to estimates of the overall population size and corrections to the employer data that reflect a comparison of survey estimates with comprehensive counts of payroll jobs.
“Job growth was stronger than we realized last year and yet inflation moderated. Clearly, we need to be more circumspect about our understanding of job growth, a tight labor market, and the potential for wage price spirals when the growth is part of a recovery from a pandemic that plunged us temporarily into a hole,” said Betsey Stevenson, economist at the University of Michigan’s Gerald R. Ford School of Public Policy.
1. Job growth has been faster than we previously realized
Average monthly job growth in 2021 exceeded that of any previous year on record, while 2022 was the second fastest year on record for job growth. And now we know both of these years had faster job growth than we previously realized. The patterns remain the same: job growth accelerated in the second half of 2021 before slowing in the first half of 2022 and slowing further in the second half of 2022.
Most notably, the data revisions add 69,000 jobs per month between July and December 2021, bringing job growth to a monthly average of 659,000. While growth slowed in the second half of 2022, the revisions added 51,000 jobs per month, bringing job growth to 358,000 per month between July and December of 2022.
The total number of jobs in the economy surpassed the February 2020 level in June 2022. And yet job growth since then has remained roughly twice as large as monthly job growth during the pre-pandemic boom.
2. Large gap remains in different measures of employment
y shown fewer jobs lost in the pandemic and a stronger recovery in job growth compared to the household survey (adjusted to be a comparable measure to the employer survey). Which one is true? Both of them have potential measurement errors and either could be wrong. The establishment survey has the strength of being compared to comprehensive counts of payroll jobs every March, and this past March those comprehensive counts revealed an ongoing gap in our measures of employment.\u003c/span\u003e\r\n\u003ch3\u003e\u003cb\u003e3. Women’s labor force participation has recovered faster than men’s\u003c/b\u003e\u003c/h3\u003e\r\n","_text":"field_5fd28bb9b48b4"},"mode":"edit"} /-->
Taken together, young and prime age women are more likely to be participating in the labor force today compared to prior to the pandemic. In contrast, men, across all age groups continue to have lower labor force participation rates.
Perhaps most discouraging is young men, those ages 16 to 24, for whom labor force participation in January 2023 had little recovered from January 2021; in both cases labor force participation was a full percentage point below pre-pandemic rates. In contrast, young women’s labor force participation fell by more, but recovered steadily over the past two years. In January 2023, women ages 16 to 24 were half a percentage point more likely to be in the labor force compared to prior to the pandemic.
Another point of weakness in labor force participation remains older workers. Both men and women ages 55 and over are less likely to be in the labor force than they were in January of 2020. Some of this reflects the aging population, but most of it reflects continued declines in participation among the youngest people over age 55.
Among those ages 25 to 34, both men’s and women’s labor force participation has steadily recovered, although neither group is back to pre-pandemic rates. In contrast, women ages 35 to 54 have higher labor force participation rates than they had prior to the pandemic. Labor force participation rates of men in this age group showed improvements in 2022, but remain below pre-pandemic participation rates.
4. Every industry gained jobs this month except the tech sector, and this month’s acceleration was concentrated in industries still recovering from COVID-19/2022/12/23/us/university-california-workers-strike.html\u0022\u003e\u003cspan style=\u0022font-weight: 400\u0022\u003ea strike\u003c/span\u003e\u003c/a\u003e\u003cspan style=\u0022font-weight: 400\u0022\u003e that brought workers back to payroll and therefore should not be over interpreted as a recovery in government jobs. There are 428,000 fewer jobs in January compared with February 2020.\u003c/span\u003e\r\n\u003ch3\u003e\u003cb\u003e5. The strongest job growth continues to come from leisure and hospitality\u003c/b\u003e\u003c/h3\u003e\r\n","_text":"field_5fd28bb9b48b4"},"mode":"edit"} /-->
Most leisure and hospitality work is in-person, and unsurprisingly, the COVID-19 pandemic hit this industry particularly hard. Almost three years later, there are over half a million fewer jobs compared with the pre-pandemic peak. The sector also experienced extremely rapid growth in the boom years prior to the pandemic. Full recovery in the sector likely requires not only achieving February 2020 levels of employment, but returning, at least somewhat, to the pre-pandemic trend growth in employment.
Employers, however, are working to continue to hire and expand, with a surge in job openings in December. Much of the rapid growth in the number of jobs in recent months has come from smaller seasonal declines. Typically, peak employment in the sector occurs in July, and January marks a low point in the number of jobs in the sector. Some of the growth may reflect a slowdown in seasonal layoffs as employers have struggled to hire and may be retaining workers rather than ramping down and ramping back up. If that is the case, we could see slower job growth in the sector this spring.
However, historical patterns suggest the leisure and hospitality sector still has a long way to grow and is likely to help sustain job growth even as other industries start to falter.