Labor Market Woes Continue in August

The U.S. labor market continues to reel from the effects of the ongoing Covid-19 pandemic. While another 1.4 million jobs were restored in August, the rate of recovery continued to fall, from 1.7 million in July and 4.8 million in June. Payrolls remain well below pre-recession levels, and permanent job losses are on the rise.

Of the millions of jobs that have been lost in 2020, the majority are temporary layoffs that have resulted from individuals being sent home amid efforts to contain Covid-19. As some states have eased lockdown measures, furloughed employees have returned to work. This trend continued throughout August, which helped reduce the number of workers on temporary layoff from 9.2 million in July to 6.1 million in August, lending a glimmer of hope to a labor market that remains battered and bruised.

Data provided by the Bureau of Labor Statistics show that these gains were enjoyed across various industries, with education and health services and manufacturing leading the way with 42 percent drops in temporary layoffs each. The leisure and hospitality industry, which has been ravaged by temporary closures, saw a 30 percent reduction in temporary job losers. Although these industry-specific figures are not seasonally adjusted, meaning that extraneous factors may play a small role, they nonetheless represent significant improvements from the historic lows of April.

While temporary job losses are declining, permanent losses are trending in the opposite direction. From July to August, the number of permanent job losers, which includes both people who lost their jobs and those that completed temporary work, jumped from 3.7 million to 4.1 million. The share of permanent job losers relative to the overall labor force has increased from 1.6 percent in April to 2.5 percent in August, and the three-month average has jumped 94 percent compared to the same period last year.

Permanent losses are likely to rise further as the labor market contracts, especially in industries where furloughed individuals may lose their job outright. The level of permanent job losers in the leisure and hospitality industry is up roughly 265 percent compared to last year (based on a three-month average). The spikes in other industries are less pronounced but are considerably elevated.

Troubling signs also emerge when gauging the length of unemployment. Over the last six months, long-term unemployment (27 weeks or above) has risen to 1.6 million persons, and it could continue to creep higher. Long-term unemployment rose throughout the 2007-2008 financial crisis and peaked at 6.8 million in April 2010, 11 months after the recession ended.

Another 6.5 million people have been unemployed for between 15 and 26 weeks, and the median duration of unemployment has shot up across the board. With the exception of mining, industries are seeing unemployment lasting for 15 weeks or more for around half of affected workers. This number jumps to roughly 70 percent for unemployed leisure and hospitality workers, whose ability to work remains particularly vulnerable to the spread of Covid-19.

These trends could precipitate lasting disruptions. According to the Federal Reserve, individuals experiencing long-term unemployment could be about twice as likely to completely drop out of the labor force as they are to return to work. Those that are able to find new employment may be forced into lower-earning jobs, the effects of which can significantly undercut the economic prospects of workers and their families.

Providing financial security to the unemployed, as well as developing measures to retool workers into high-growth industries, should remain a priority for leaders from both parties. Even if the economy is able to snap out of the recession quickly, the challenges that Covid-19 has created in the labor market will likely linger well past the November election.

Seasonally adjusted figures used where available. Industry-specific values for temporary and permanent job losers are not seasonally adjusted. Many thanks to Pavak Patel for his research contributions to this commentary. 

Matthew P. Funaiole is a senior fellow for data analysis with the iDeas Lab and senior fellow with the China Power Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Matthew P. Funaiole
Vice President, iDeas Lab, Andreas C. Dracopoulos Chair in Innovation and Senior Fellow, China Power Project