By Howard Schneider
WASHINGTON (Reuters) - Economists who have studied employment during the recovery from the coronavirus pandemic agree that Black, Hispanic, and less-educated workers saw outsized gains relative to whites or college degree holders whose fortunes typically outpace others.
But as the demand for workers begins to ease, they are also hoping the U.S. may break the historic pattern where the burden of rising joblessness falls most heavily on those same groups.
After an initial half-percentage-point rise in the unemployment rate from the historically low 3.4% in April, there is reason for optimism, but also a dose of developing concern, said William M. Rodgers III, vice president and director of the Institute for Economic Equity at the St. Louis Federal Reserve.
So far, he said at a Boston Fed labor market conference earlier this month, measures like the employment-to-population ratio largely have not behaved differently for key racial groups, for women versus men, or among those with different education levels.Through what he calls the current "tight labor market recovery period," beginning in March 2022 and coinciding with both the start of Fed interest rate increases and a run of below-4% unemployment, less advantaged groups have held onto employment gains made during the pandemic recovery.
The employment-to-population ratios for Black men and Black women, for example, remained on average higher from March 2022 through September 2023 than they were before the health crisis. The employment-to-population ratio for those aged 25 and over without a high school diploma has trended higher in recent months even as it has flatlined for those with more education.
For younger workers, however, and particularly for younger Blacks not enrolled in school, job outcomes have begun to worsen in what Rodgers said is a possible sign that whatever benefits the current tight labor market has provided to those at the margins of the economy, they may not be permanent.
For most segments of the population "we're not seeing an appreciable increase in their jobless rates, which is good news" as job openings fall and the demand for workers cools, Rodgers said. But the "sobering news," he added, was a recent rise in joblessness for younger people.
Rodgers is not alone in his concern. Torsten Slok, chief economist at Apollo Global Management (NYSE:APO), said the jump in the unemployment rate for 16- to 19-year olds, from 9.2% in April to 13.2% in October, warranted a close watch as "a leading indicator of broader labor market weakness."
REAL WAGE GROWTH
Faced with the worst breakout of inflation in 40 years, the Fed raised interest rates aggressively from March 2022 through this past July and now seems to have reached the peak of its tightening cycle.
Throughout that process, policymakers have hoped to engineer a return from the fast pace of price increases to the Fed's 2% inflation target while leaving the employment gains of recent years intact. Fed Chair Jerome Powell has often pointed to 2019, the year just before the pandemic, as a sweet spot for the U.S. economy, with the unemployment rate steadily below 4%, inflation remaining low, wage gains flowing to less well-paid workers, and a narrowing of the longstanding unemployment wedge between whites and racial and ethnic minorities.
The performance of the economy during that period led many Fed officials to revise their thinking about how low the unemployment rate might fall without posing a risk of wages rising so fast they triggered broader inflation. Research has since tended to suggest that there may be untapped pools of labor that only become available when the job market is tight - an argument for keeping monetary policy looser than not.
In the face of a marked slowdown in inflation, the Fed will see in the coming months whether it has in fact pulled off an elusive "soft landing," and in particular whether the experience of the pandemic - when enormous fiscal stimulus was followed by a massive reshuffling of the job market - has done anything to change the basic distribution of jobs, income and opportunity across the economy.
A study by the JPMorgan Chase (NYSE:JPM) Institute released earlier this month, for example, found that median income gains for Blacks and Hispanics had outpaced inflation even during the breakout price increases of the pandemic era, with inflation-adjusted incomes higher through August than at the end of 2019. Inflation-adjusted incomes for whites and Asians, by contrast, were slightly lower.
Workers in the bottom pay quartile also saw median "real" income gains of 6% since 2019, more than the rest of the income distribution.
Despite inflation "we still see real wage growth, and it's higher for Black and Hispanic families," said the institute's president, Chris Wheat, adding that the difference may be driven by things like the change in the occupational and wage mix during the pandemic, when in-person services required higher wages to lure people back to work, and an increase in workers' bargaining power in general.
'REMARKABLY EQUITABLE'
Findings like that have given some hope that the gains can persist this time, rather than be lost under the last-hired-first-fired dynamic that typically occurs, Cecilia Rouse, the former head of the Council of Economic Advisers under President Joe Biden and incoming president of the Brookings Institution think tank, said at this month's Boston Fed conference.
The labor market recovery so far has been "remarkably equitable," she said.
But the next few months may be telling. After surging at the start of the pandemic for example, the gap between the unemployment rate for whites and Blacks fell quickly as the economy reopened and hit a record low of 1.6 percentage points in April.
It has since risen to 2.3 points, and the percentage rise in the number of Blacks who are unemployed has been nearly double that of whites.
Pandemic-era programs threw a safety net under many families, and the tight job market that has since developed helped many get a foothold, Rouse said.
"Will this last and what's to come?" she said. "You can already see that we're losing a little bit of ground."