America's oxymoron economy
America currently has an oxymoron economy: high unemployment but record job openings. These should be mutually exclusive; instead, they are becoming stubbornly persistent. They are also the biggest reason to study governments’ role during COVID-19.
The economy has grown strongly for three straight quarters. In the first quarter of 2021 real GDP grew 6.4 percent. The economy essentially reached its pre-pandemic level at the end of 2020 and surpassed it in 2021’s first quarter.
Employment’s recovery continues to significantly lag the economy. Over 7 million fewer people were employed this May than they were in February 2020, and 9.3 million are officially reported as unemployed. The official unemployment rate is 5.8 percent, compared to 3.5 percent in February 2020. The real unemployment rate is even higher.
There has been a dramatic drop in the labor force participation rate over the last year. In February 2020, it was 63.4 percent; in May it had fallen almost two percentage points to 61.6 percent. This seemingly small change has a big impact: If today’s participation rate matched last February’s, today’s unemployment rate would be a staggering 8.4 percent — 45 percent higher than today’s official rate.
Incongruously, job openings are at record levels. The latest report (April’s) showed job openings stood at an all-time record of 9.3 million, coincidentally matching May’s official unemployment figure. The same April report showed that layoffs also reached a record low of just 1.4 million. Yet, that same report showed that three times as many, 4 million in total, had voluntarily quit their jobs.
Combined, America has a recovered economy with strong overall growth and record job openings, but high official unemployment and even higher real unemployment. Truly an oxymoron.
Several theories exist to explain the conventionally inexplicable. There is a strong possibility that federal unemployment payments have supplemented state payments so much that many individuals find work economically unattractive.
This belief is supported by the highest unemployment occurring among the least experienced workers, who, as the lowest paid, are those most likely to find their prospective wages eclipsed by high unemployment compensation. The official unemployment rate for teenagers (16 to 19 years of age) is 9.6 percent and 9.1 percent for those with less than a high school education. If, as in the general population, these groups’ official rates are 45 percent lower than the real rates, they are truly astronomical.
Acting on this belief, 25 states, with 40 percent of the U.S. workforce, have decided to end their additional federal unemployment benefits.
There is also a frequently heard complaint that child care’s unavailability has kept women out of the workforce. The departure of almost 1.8 million women from the workforce since February 2020 is often associated with the absence of child care.
Finally, there is the disturbing possibility that the pandemic and lockdowns permanently destroyed many businesses, particularly smaller and less capitalized ones, leaving both owners and workers unemployed. If so, this will take much longer to correct.
In two of these three theories, government action played a direct role. Governments directly imposed lockdowns. Governments also backed increased unemployment compensation in order to compensate for pandemic and lockdown dislocations.
Even in the case of child care’s unavailability, government action has at least an indirect role. The unavailability must be the result of an inability to get staff, a lack of demand (because workers are staying home), or that lockdowns destroyed them or are prohibiting their reopening.
After a year and a half, Washington is rightly, though belatedly, seeking to learn how COVID-19 began. This is crucial; we must seek to ensure that such a pandemic does not recur. It is equally important to recognize that the same necessity applies to today’s oxymoron economy. As we look for COVID’s 2019 origins, it is important that we learn the reason for jobs’ current termination.
J.T. Young served under President George W. Bush as the director of communications in the Office of Management and Budget and as deputy assistant secretary in legislative affairs for tax and budget at the Treasury Department. He served as a congressional staffer from 1987 through 2000.