The pandemic triggered an economic crisis unlike anything seen before in a recession. So perhaps it shouldn’t be surprising that the aftermath has also unfolded in ways that almost no economist expected.
As unemployment soared in the early weeks of the pandemic, many feared a repeat of the long, slow recovery that followed the Great Recession: years of joblessness that left lasting scars on many workers. Instead, the labor market recovery was in many ways the strongest on record.
At the beginning of 2021, some economists predicted a rise in inflation. Others were skeptical: similar predictions in recent years – some from the same forecasters – had not come true. This time, however, they were right.
And as the Federal Reserve began to rein in inflation, there were warnings that the job market was certain to collapse, as it had threatened every time policymakers began raising interest rates too quickly in the decade before the pandemic. Instead, the central bank has raised interest rates to their highest level in decades, and the labor market remains stable or perhaps even gaining momentum.
The final chapter on recovery has not yet been written. A “soft landing” is not a done deal. But it’s clear that the economy, particularly the job market, has proven far more resilient than most people thought likely.
Interviews with dozens of economists — some of whom got some of the recovery right, many of whom got most of it wrong — provided insights into what they’ve learned over the past two years and what they think about the labor market right now. They didn’t agree on all the details, but three broad themes emerged.
1. This time it was really different.
Economists have learned to be wary of concluding that “this time is different.” No matter how varied the details may be, the basic laws of economic gravity generally remain constant: bubbles burst; Debts come due; Hiring and firing patterns evolve in ways that are largely, if imperfectly, predictable.
But the pandemic recession was really different. It was not caused by a fundamental imbalance in the economy, like the dot-com bubble of the early 2000s or the subprime mortgage boom a few years later. The trigger was a pandemic that forced many industries to close almost overnight.
The reaction was also different. Never before has the federal government supported so many households and companies with so much aid. Despite mass unemployment, personal incomes rose in 2020.
The result was a quick but chaotic recovery. When the vaccines allowed people to get back on the road, they had money to spend, but companies weren’t willing to give it to them. They had laid off millions of workers, some of whom had moved to other cities or industries, or started their own businesses, or who were unavailable for work because schools remained closed or health risks still seemed too great. Companies had to grapple with supply chains that remained faltering long after daily life had largely returned to normal, and they had to adapt their business models to schedules, spending patterns and habits that had changed during the pandemic.
In retrospect, it seems obvious that normal economic rules may not apply in such an environment. For example, when job vacancies decrease, unemployment typically increases – because there are fewer opportunities available, it is harder to find work. But after the pandemic-related closures, even after the initial hiring rush subsided, there were still more job openings than workers to fill them. And companies were eager to retain the employees they had worked so hard to hire, so layoffs remained low even as demand waned.
Some economists recognized that the pandemic economy would likely follow different rules. Christopher J. Waller, a Fed governor, argued in 2022 that job vacancies could fall without necessarily leading to a rise in unemployment, for example. However, many other economists were slow to recognize that standard models did not apply to the pandemic economy.
“There is a danger in using linear relationships estimated in normal times to predict what will happen in extreme times,” said Laurence M. Ball, an economist at Johns Hopkins University. “We should have known that.”
2. The job market is returning to normal – and normality is pretty good.
The job market doesn’t look so strange anymore. In fact, things look largely the same as they did shortly before the pandemic began. Job offers are slightly higher than in 2019; The fluctuation is slightly lower; The unemployment rate is almost the same.
The good news is that 2019 was a historically strong labor market, marked by gains across racial and socioeconomic lines. The 2024 version is even stronger in some ways. The unemployment gap between black and white Americans is near a record low. Employment opportunities for people with disabilities, criminal records and low levels of formal education have improved. Wages are rising across all income groups and, now that inflation has cooled, are rising faster than price increases.
Of course, “normal” looks a little different five years later. The pandemic has forced millions of people into early retirement, and many have not returned to work. The persistence of remote and hybrid work has hurt demand for some businesses, such as dry cleaners, and shifted demand for other businesses, such as weekday lunch spots, from cities to suburbs.
But while these patterns will continue to evolve, the era of frantic hiring and redeployment is largely over. Workers are still changing jobs, but they’re no longer heading out the door on their lunch break to take advantage of a better-paying opportunity on the road. Employers still complain that it’s difficult to hire new employees, but they’re no longer offering signing bonuses and double-digit raises to attract people.
As a result, many economic rules that were suspended at the start of the recovery could become relevant again. For example, without such a surplus of unfilled jobs, a further decline in job vacancies could actually augur an increase in unemployment. That doesn’t mean the old models work perfectly, but they’re worth keeping an eye on again.
“It’s easy to imagine that we had a time when a lot of strange things happened, but now we’re returning to a world that we understand,” said Guy Berger, director of economic research at the Burning Glass Institute labor market research organization.
3. The good times don’t (necessarily) have to end.
A few years after the end of the Great Recession, many economists began warning that the United States would soon run out of workers.
Employment was past its pre-recession peak. The unemployment rate neared 5 percent, a level that many economists associated with full employment. Millions of people had left the job market during the recession, and it was unclear how many wanted a job or could get one if they tried. The nonpartisan Congressional Budget Office estimated in early 2015 that job growth would soon slow to a minimum, just enough to keep pace with population growth.
These forecasts turned out to be extremely pessimistic. U.S. employers added more than 11 million jobs from the end of 2014 to the end of 2019, millions more than the budget office had expected. Companies hired job seekers they had long avoided, pushing unemployment to its lowest level in 50 years, and raised wages to pull people off the sidelines. They have also found ways to increase worker productivity and allow companies to continue to grow without hiring as many employees.
It is possible that without the pandemic, the job growth of recent years would have come to a halt at some point. However, there is little evidence that any imminent development would have occurred in 2020 and there is no reason why it needs to happen in 2024.
“A strong labor market sets off a virtuous circle in which people have jobs, buy things, companies do well and hire more people,” said Julia Pollak, chief economist at job site ZipRecruiter. “It takes something to slow that train and break that cycle.”
An interruption is possible. The Fed, nervous about inflation, could wait too long to start cutting interest rates and end up triggering a recession. And recent data may have overstated the strength of the labor market – with economists pointing to several signs that cracks could be forming beneath the surface.
But pessimists have been citing similar cracks for well over a year. So far the foundation has held up.
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2024-02-14 15:28:49
www.nytimes.com
