2020 was a painful year for the US labor market
2020 will be remembered for the devastating health and economic effects of the COVID-19 pandemic. The US economy lost 9 million jobs, and the unemployment rate averaged 8.1 percent. The massive fiscal and monetary policy response to the pandemic helped put people back to work in late spring and summer, but progress slowed and reversed toward the end of the year as the pandemic worsened and the initial stimulus faded.
The official unemployment rate climbed from 3.5 percent at the start of 2020 to 14.8 percent in April as businesses closed to limit the spread of COVID-19. But even this dramatic increase understated the scale of the problem. The "realistic" unemployment rate, a more historically comparable measure of the unemployment rate, peaked at 20.4 percent in April 2020.
Unemployment fell dramatically in the following months, as workers returned from temporary layoffs. But the number of workers not temporarily laid off—for example, those who were fired or whose firms failed—increased throughout the pandemic. Similarly, the number of long-term unemployed drifted up, reaching 4 million in December, 2.8 million more than its February level.
The 2021 labor market will bear the scars of 2020. Additional stimulus and the prospect of widespread vaccination will help, but further recovery will require the harder step of people finding new jobs, perhaps in new industries. How quickly this adjustment happens will determine how long those scars last. The worse the underlying employment and health situations get, the more difficult swift labor market adjustment will become.
This PIIE Chart was adapted from Jason Furman and Wilson Powell III's blog post, "Progress on US jobs reverses in December as labor market remains in bad shape."