Jobs are plentiful but unemployment remains high

The job openings rate in the United States was higher in February 2021 than in any month since 2001, but unemployment remains high, and the labor market is still more than 10 million jobs short of its pre-pandemic trend, indicating the demand side of the labor market is recovering quicker than the supply side.

The official unemployment rate increased slightly to 6.1 percent in April as the labor force participation rate creeped up to a still low 61.7 percent. The fall in labor force participation since the beginning of the pandemic has been unusually large, and its recovery has largely stalled since late summer. The realistic unemployment rate, which adjusts for this unusual decline in participation to provide a more historically comparable measurement, fell slightly in April but remains at a still high 7.6 percent.

In a normal recession and recovery, the primary constraint on employment is reduced demand for workers. But in the current labor market, job openings are relatively plentiful while unemployment remains high. The ratio of unemployed to job openings was around 1.1, according to official measurements, and 1.4 for the realistic rate—roughly comparable to the labor market of 2017.

The fact that labor force participation has remained low in the face of increasingly rapid job creation is likely the result of a number of interrelated factors, the most important of which is likely continued concern over workplace safety after high levels of COVID-19 infection and death. Additionally, parents who left jobs when schools and daycares closed are also unlikely to have returned to work, as many schools have not yet returned to full-time in-person instruction and childcare options are limited. Labor supply and demand will increase as the economy and schools fully reopen and vaccinations bring hospitalization and death rates down, but the longer that takes, the higher the chance of economic scarring.

This PIIE Chart was adapted from Jason Furman and Wilson Powell III’s blog post, “The US labor market is running hot…or not?”