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2021 shattered job market records, but it’s not as good as it looks

When placed in proper context, the massive job and wage gains of 2021 start to come back down to earth

A Chevron station in Snoqualmie Pass, Wash., on Jan. 4. Gas-station staff are among the lowest-paid workers in the country, but have seen much-higher-than-average wage gains this year. (David Ryder/Bloomberg News)
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While the labor market began 2021 in a deep hole, huge numbers of Americans found work amid the pandemic, with a record-breaking 6.4 million jobs added over the course of last year, eclipsing all expectations.

Rank-and-file workers’ hourly paychecks rose by $1.46 an hour, another record-breaking number. Gains were especially pronounced for those in lower-paying industries.

It was, by these measures and many others, the best year in labor-market history, ignited in part by aggressive stimulus spending that pushed consumer spending to stratospheric levels. But the numbers on their own can be downright misleading.

The 6.4 million jobs gained this year, while a record in absolute terms, represents only a 4.5 percent increase in the workforce. That’s smaller than the 5.0 percent growth seen in 1978, when a much smaller labor force added 4.3 million jobs. In fact, relative to the size of the workforce, it’s only the 11th best calendar year since record-keeping began in 1939.

This year’s numbers are also distorted because the recovery isn’t complete. As a rule, the labor market has a much easier time regaining lost jobs than it does creating new ones. The economy lost 22.4 million jobs at the height of the coronavirus lockdowns. When you account for the 12.3 million jobs regained in 2020 as businesses reopened, plus the 6.4 million added in 2021, the economy is still missing 3.6 million jobs (the numbers may not match perfectly due to rounding). And that would just bring it back to pre-recession levels.

To catch up with population growth, the economy needs 5 million more jobs, said economist Elise Gould, of the Economic Policy Institute, a left-leaning think tank. Before the recession, jobs were growing faster than population. To reach levels where employment would have been, had pre-pandemic job growth trends continued, the United States would have to add 8 million jobs, Gould said. And that will only get harder as federal stimulus programs run out.

The easiest gains that propelled eye-popping months like million-job July are now off the table. In December 2020, there were still 3.1 million workers on temporary layoff who could be called back to their employers. This past December, that pool of temporarily laid off workers had fallen to 812,000. That’s below its 2019 average and dropping at a steady clip. Employers who still need workers will have to cast a wider net and look at workers with less-relevant experience or try to woo workers with flexibility, like opportunities for remote work or more control of their schedules.

As a result, Americans are experiencing a surge in job security. There are more openings per job seeker than there have been at any other time since the government started keeping track in 2000, said University of Minnesota economist Aaron Sojourner, who worked in the White House during the Obama and Trump administrations. The number of part-time workers who want full-time work continues to fall rapidly, as employers are asking staff to work longer hours.

One common thread between worker leverage and the slowing job growth in recent months? The number of available workers remains low. More than 1.5 million Americans have retired earlier than expected during the pandemic, and hundreds of thousands more have left the labor force for other reasons, including child-care and health worries.

The share of Americans working or looking for work plunged during the pandemic and remains near levels not seen since the 1970s, when many women were still working at home and had yet to join the official labor force.

Employers who can’t find workers may look to automation to fill the gap. Ohio pipemaker Advanced Drainage Systems saw record sales in the most recent quarter but couldn’t keep its production lines running full time due to labor shortages, CEO Donald Scott Barbour said on a recent earnings call. Barbour mentioned the company was pursing “all kinds of other projects of automation” at a manufacturing facility in Kentucky, so it could meet demand without big increases in hiring.

Even the most careful headline numbers hide that not all groups of Americans have recovered equally. Asian workers have already regained all the jobs they lost during the downturn, and their Hispanic peers are close, but White and Black workers remain further behind. Black women, in particular, still have 4.5 percent fewer workers than they did before the pandemic began. White women have 2.3 percent fewer.

“The pandemic exacerbated existing labor market inequities,” Nela Richardson, ADP’s chief economist, wrote in a recent blog post. “Low-skilled workers took the brunt of job losses. The recovery has been slowest for people of color and women. Women also are disproportionately shouldering added family responsibility and suffering bigger pay gaps.”

Like the jobs numbers, the wage gains of 2021 also tend to wilt under scrutiny. A record $1.46-an-hour raise brought pay for the average rank-and-file worker to $26.61.

That 5.8 percent increase is still the biggest annual raise workers have seen in 40 years, since the last big (7.2 percent) bump in 1981. Relative to the size of their paychecks, workers received bigger raises every year from 1971 to 1981 than they did in 2021.

As in the 1970s, workers’ raises look even worse this past year after accounting for inflation. Prices grew 6.8 percent in the year ending in November, the most recent data out. To put it another way, workers’ earnings have actually lost ground as supply-chain issues, the pandemic and swollen savings accounts drive up the cost of living at a pace not seen in decades.

The highest wage gains tended to go to workers in the lowest-paid industries, according to a Washington Post analysis of Labor Department data. For workers in those industries, like nonmanagerial gas station workers whose pay jumped 14.1 percent, to $14.72 an hour, wage gains have stayed ahead of rising prices. The fastest gains of any subsector went to nonmanagerial hotel workers, whose pay climbed 22.5 percent, to $18.90 an hour, as employers were forced to pay more for some jobs that leave workers exposed to the still-virulent coronavirus.

The global pandemic, of course, stalked the 2021 labor market from start to finish. The numbers in December’s report were measured in the middle of the month, before the omicron variant ignited a record-breaking acceleration in covid-19 cases. If the latest variant affected the labor market like the delta variant did — an impact that’s far from guaranteed — it likely won’t show up until next month’s numbers.

So, as we etch 2021 into the record books, remember that we do so with a big, spiky coronavirus-shaped asterisk. It was a year in which everything moved fast, but nothing was ever as simple as it seemed.

Alyssa Fowers contributed to this report.

correction

A previous version of a chart of U.S. nonfarm payroll jobs accompanying this story incorrectly labeled the vertical axis as thousands (K) instead of millions (M). There were about 150 million jobs in the U.S. in December (148,951,000), not 150,000 jobs.

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