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Economics

COVID & Unemployment: Behind the Numbers

Poole economics professor Steve Allen shares his perspective on how the pandemic is affecting the national economy

By Caroline Barnhill

As the war against COVID rages on, its effects on the economy continue as well. Joblessness remains high. The U.S. Department of Labor report, released on June 4, 2021, shows the U.S. unemployment numbers at 5.8%. Additionally, 559,000 new jobs were created in May, which while positive, still fell short of economist projections of 671,000, according to a recent Dow Jones survey.

The fact is the economy has yet to fully rebound from COVID and the recession that started in March 2020. Compounding the problem, many businesses claim that they cannot find qualified workers. Some believe this is due to the supplemental unemployment benefits of $300 a week, while others attribute this to other barriers preventing individuals from getting back to work – like fear of the virus or childcare responsibilities. 

To better understand the most recent unemployment numbers, Poole College of Management professor of economics Steve Allen provides answers to some of the most commonly asked questions.

What do these numbers mean?  

Allen: Let’s start with the big picture. Most journalists focus on the unemployment rate, which went from record lows in early 2020 to levels that had not been seen since the Great Depression. While we have rebounded some – unemployment has dropped from 14.8% in April 2020 to 5.8% today – that is still almost twice as high as before COVID hit.  

However, to get the full picture, we really need to look beyond the unemployment numbers. We also need to look at the size of the labor force, recognizing that while some people who lose their jobs start looking for new ones, just as many instead seek out other paths in life. Consider the following:

  • There are 8 million fewer people employed now than there was before COVID.
  • There are 4 million more people unemployed over that time frame.
  • There are 5 million more people who have dropped out of the labor force. 

Who is leaving the labor force?

Allen: The labor force dropouts are largely students, retirees, people staying home to take care of others – whether children or elders – in their household and the disabled.  Many people have experienced significant personal changes since COVID. Some of these labor force dropouts are not likely to return to work. At the same time, there is also a critical mass of people who are discouraged workers – people who would like to have a job but have given up looking. While some of these people will return to the labor force in a few months, only time will tell how this segment of the population will sort itself out.  

How much does unemployment insurance factor into people’s decision to return to the workforce?  

Allen: It would be naive to say it does not matter at all. Those who are eligible for unemployment can receive $300 a week from the federal government on top of state benefits that average $350 nationwide and $240 in North Carolina. In North Carolina, that amounts to the same income one would receive for working 40 hours a week at $13.50 per hour. That is more than many jobs in the state pay – especially in rural areas. However, the average wage in the state is $24 per hour, so most people would be better off income-wise if they were working.

Also, some individuals are mistaken in believing that all unemployed persons receive benefits. While this was close to true last April when 20 million jobs vanished and the federal government came through with multiple relief programs, it is not the case today. Currently, there are roughly 10 million individuals who are unemployed and only 3.6 million of them are receiving unemployment benefits.  

We have seen some states drop the federal supplemental benefits of $300 a week over recent weeks. So if unemployment benefits have prevented a segment of the unemployed population from looking for jobs, we will start to see an uptick in employment in those states two or three months for now. (And there are lots of economists who are eager to write papers on it!)

But I see “Help Wanted” signs everywhere. How can there be an employment problem?

Allen: While it is true that the percentage of jobs going unfilled is getting close to 5% – which is as high as it has been in the last 20 years – I think this number actually reflects the reopening of the economy as more businesses try to get back to normal. The job opening rate is especially high in manufacturing, education and healthcare — all sectors that have been hit pretty hard by the pandemic. We have to keep in mind that companies are not only having trouble hiring enough workers, but they are also having trouble getting materials for production and finished goods to sell. Just look at the number of lumber orders going unfilled!

So what’s the bottom line with unemployment insurance? 

Allen: We have two million more people receiving unemployment benefits now than before the pandemic, but we also have eight million fewer jobs. So while unemployment insurance matters, other factors have to matter more.  

Do you see any fundamental challenges in the labor market right now?  

Allen: I believe the biggest issue may be that the skill set of those who have lost jobs does not align well with the skills currently demanded by the employers who have vacancies. For instance, the leisure and hospitality sector was the hardest hit. There are about three million fewer jobs in that sector today than there were before the pandemic.  A lot of the new jobs are in construction and manufacturing, where chefs or hotel clerks have limited options. It will take time for these workers to prepare for new career paths. Another angle to consider is that many of the older workers who lost their jobs may choose to not return to the workforce. 

Beyond that, we must recognize that the pandemic has literally been a life-changing experience for most households. Many have questioned their values and priorities as a result, especially regarding work and family. It will be interesting to see how many parents, especially mothers, choose to return to the labor force when schools start up again this fall.