Vulnerable Workers and the State of the U.S. Labor Market

In the year since last Labor Day, the U.S. labor market continued its recovery from the COVID-19 recession; however, starting in March 2021, a new challenge began to confront families. High inflation has started to eat away at wage gains that emerged from the combination of extremely high levels of job openings and low unemployment. Reaching its highest level in 40 years, inflation has made it harder for workers and families to make ends meet.

To address these price pressures, the Federal Reserve began increasing interest rates in March 2022 to bring inflation back to its 2% target. While raising rates may seem counterintuitive to supporting struggling households, doing so to fight inflation is an important move toward economic equity, as it will ultimately help households meet their expenses.

Meanwhile, job openings have fallen from their March peak, and there is concern that unemployment among vulnerable workers will start to rise. The following groups fit our definition of being economically vulnerable and are our primary focus: teenagers (ages 16 to 19); all adults with no more than a high school diploma (age 25 and older); Black men and women; women of all races; Latino men and women; people with disabilities (age 16 and older). Of course, other groups and communities also face systemic and structural hurdles. They include out-of-school youths, American Indians and Alaska Natives, and residents throughout the Eighth Federal Reserve District, particularly those in the Mississippi Delta. The Eighth District includes all of Arkansas, southern Illinois, southern Indiana, western Kentucky, eastern Missouri, northern Mississippi and western Tennessee. Vulnerable workers are more sensitive to economic slowdowns or downturns. Part of this vulnerability stems from historical challenges that make it harder to be resilient.

As job openings fall from their relatively high level, will unemployment rise? If labor market conditions begin to deteriorate, lowering structural barriers to getting a job that the pandemic exacerbated could help. Investments in supports that help job searchers receive and accept offers have the greatest potential to reduce these barriers to work. This is particularly important for fully restoring the labor force participation of women, especially mothers, who disproportionately left paid work during the pandemic to take care of their families.

A Short Recap

Since Labor Day in 2021, the number of nonfarm payroll jobs returned to its pre-pandemic level and the national unemployment rate fell from 4.7% to 3.7%. Unemployment was at or below 4% for the first eight months of 2022. As a result, there have been more job openings than unemployed people, suggesting a continued scarcity of workers.

These tight labor market conditions benefited workers in several ways. To attract and retain talent, businesses increased all forms of compensation: wages, benefits and bonuses. The period since last Labor Day has seen workers grappling with issues like retirement choices, access to child care (a key ingredient in the U.S. economy’s ability to be competitive), and remote work schedules.

Concerns about workplace safety, stagnation in the share of national income going to workers as compensation, and public support for organized labor seem to have increased workers’ interest in collective bargaining. From Oct. 1, 2021, to June 30, 2022, the number of petitions for workplace referendums on union representation filed with the National Labor Relations Board rose 58% to 1,892.

Yet communities have also faced new headwinds since last Labor Day. While people continue to adapt to the uncertainty that some variant of COVID-19 will always have the potential to disrupt daily life, high inflation has been the most notable challenge. In the Census Bureau’s Household Pulse Survey conducted between late July and early August, 40.1% of people nationwide found it “somewhat or very difficult” to meet core expenses (e.g., mortgage, rent, food, car payment, medical expenses). This was up 12.5 percentage points from the same time last year.

The following figure shows that the difficulty in meeting expenses increased the most among individuals with household incomes of less than $100,000. Black or Latino individuals, and individuals without a four-year college degree experienced the greatest hardship. Over this period, food insecurity ticked up from 8.2% to 11.5%.

Individuals Reporting “Somewhat” or “Very Difficult” to Meet Expenses in Past Seven Days

SOURCES: U.S. Census Bureau Household Pulse Survey and Institute for Economic Equity calculations.

Vulnerable Workers and the Labor Market

Even though the economy is cooling off, the labor market remains strong, especially for vulnerable workers. To date, employment among vulnerable workers has not fallen, but it could as the number of job openings contracts. Fears are growing that the economy is already in or moving toward a recession.

What could happen to vulnerable workers if labor market conditions deteriorate? Historically, these workers bear the brunt of job losses when unemployment rises. Automatic stabilizers, such as unemployment insurance, can be an important way to lessen the impact of job loss on families’ financial well-being.

And there are other ways to help these workers if job openings drop sharply and unemployment increases substantially. The impact of weaker labor market conditions could be mitigated by major improvements to the job matching process, such as the removal of structural barriers to work (e.g., access to childcare).In the Beveridge curve literature, the time it takes to secure a job is referred to as the job matching process. Personal characteristics—such as education, experience and mental health status—plus structural barriers—such as insufficient access to transportation, absence of child care and discrimination—create inefficiencies in the matching process.

Regardless of the future direction of the labor market, proactive steps to lower structural barriers to the job matching process could be taken to keep unemployment among vulnerable workers from rising. Investments in what the United Nations calls “human priority concernsHuman priority concerns are defined as government social benefits to people, social insurance funds, housing and community services, health, recreation and culture, elementary and secondary schools, higher education, libraries and for income security.” are particularly important for fully restoring labor force participation. Investments of this nature have the greatest potential for removing inefficiencies in the job matching process (e.g., absence of affordable childcare) to help lessen the time it takes to get a job.

In Pursuit of an Equitable and Inclusive Economy: A Research Agenda

The St. Louis Fed’s Institute for Economic Equity will continue to pursue research along three pillars: wealth, workforce and the monitoring of economic conditions in communities. Our research into financial stability led us to five wealth-related strategies that people could consider to strengthen families and communities:

• Promote financial stability.
• Help families build emergency savings.
• Build wealth for workers and future generations.
• Protect wealth that families have accumulated.
• Consider new sources of wealth creation and property ownership.

A historical case, a resources-based case, a business case and a deferred maintenance case guide our research regarding the workforce. The first builds on Dr. Martin Luther King Jr.’s 1966 article in The Nation, where he lays out an argument for providing not only jobs, but good-quality jobs. The resources-based case, or ALICE In 2009, the United Way of Northern New Jersey published its first ALICE report. ALICE stands for “asset limited, income constrained, employed.” The report represents a community’s households that can’t afford a “survival” budget. case, shows that, prior to the pandemic, 42% of U.S. households could not afford basic needs. The business case, if we focus on just St. Louis, estimated that the buying power of Black households would increase from $10.2 billion to $16.3 billion if income parity with white households were achieved.

Our community impact research will identify and explain the barriers faced by workers and their families in the Eighth Federal Reserve District and beyond. In particular, the Institute for Economic Equity will examine the serious financial problems—from rising housing costs and continuing inflationary pressures on basic necessities like food and health care—that confront people of color and low- to moderate-income households.

We will continue to listen to our Eighth District communities to understand emerging trends and opportunities. As part of that commitment, we will implement the Federal Reserve System’s annual COVID-19 Community Impact Survey, which seeks to understand the ability of low- to moderate-income communities to adapt to ongoing disruptions, exhibit resiliency and thrive.

Notes

1. The following groups fit our definition of being economically vulnerable and are our primary focus: teenagers (ages 16 to 19); all adults with no more than a high school diploma (age 25 and older); Black men and women; women of all races; Latino men and women; people with disabilities (age 16 and older). Of course, other groups and communities also face systemic and structural hurdles. They include out-of-school youths, American Indians and Alaska Natives, and residents throughout the Eighth Federal Reserve District, particularly those in the Mississippi Delta. The Eighth District includes all of Arkansas, southern Illinois, southern Indiana, western Kentucky, eastern Missouri, northern Mississippi and western Tennessee.
2. In the Beveridge curve literature, the time it takes to secure a job is referred to as the job matching process. Personal characteristics—such as education, experience and mental health status—plus structural barriers—such as insufficient access to transportation, absence of child care and discrimination—create inefficiencies in the matching process.
3. Human priority concerns are defined as government social benefits to people, social insurance funds, housing and community services, health, recreation and culture, elementary and secondary schools, higher education, libraries and for income security.
4. In 2009, the United Way of Northern New Jersey published its first ALICE report. ALICE stands for “asset limited, income constrained, employed.” The report represents a community’s households that can’t afford a “survival” budget.