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An Assessment of the U.S. Labor Market


James Bullard
Thursday, June 3, 2021

The economic shock caused by the COVID-19 pandemic and the public health measures needed to contain it had an unprecedented impact on the U.S. labor market. The unemployment rate jumped during the early months of the pandemic, and other measures of labor input—such as payroll employment and hours worked—declined dramatically. From February to April 2020, the unemployment rate increased from 3.5% to 14.8%. Over that same period, payroll employment declined by 22.4 million jobs, and total hours worked declined by 17%.

While the shock was immediate and large, the economy is recovering at a swift pace, as vaccines bring the public health crisis under control. The speed of today’s recovery is much faster than with many past economic shocks, which were caused by underlying weaknesses in the economy, as in the financial crisis of 2007-09. How far along we are with the U.S. labor market recovery can be difficult to determine, however, especially since some of the economic data have not aligned with anecdotal information from businesses.

So, how do we assess the state of the U.S. labor market?

Output vs. Labor Market

In the second quarter, real gross domestic product (GDP) is likely to surpass its previous peak level reached in the fourth quarter of 2019. This suggests the recession and the recovery period are behind us, and that the U.S. economy is moving into the expansion phase of the business cycle during the current quarter.

While real GDP is poised to return to and surpass its previous peak, many measures of the labor market remain below their previous peaks, as discussed below. How could that be? One reason is likely due to the composition of the pool of workers. Many of the workers most disrupted by the pandemic were in “high physical contact” jobs, which tend to be lower-wage jobs. In contrast, high-wage workers have been more likely to be able to continue working—and possibly with higher productivity. This could explain how the economy is able to produce as much output as before the economic downturn with fewer total employed.

Common Measures of Labor Market Performance

A common way to gauge how the labor market is doing is to count the number of people employed. Payroll employment for April 2021 remained 8.2 million below its February 2020 level, suggesting that the labor market recovery is far from complete. Another way is to count hours worked. As of April 2021, total hours worked remained about 4% below their pre-pandemic level.

Another consideration when looking at the number of jobs is that labor force participation has been trending downward since 2000.The overall labor force participation rate is projected to continue declining from 2019 to 2029, according to the Bureau of Labor Statistics’ projections released in September 2020 and discussed in this Monthly Labor Review article. Relative to a simple trend line drawn from 2000 to the present, the labor force participation rate was above trend toward the end of the pre-pandemic expansion but is now back on trend, as shown in this FRED graph. During the pandemic, people who dropped out of the labor force include some workers close to retirement who may have decided to go ahead and retire. These workers—especially ones who benefited from increases in the stock market and housing wealth—may be less likely to come back into the labor market once the pandemic ends.

Given the longer-run downward trend in labor force participation combined with retirees who have left the labor force and are unlikely to rejoin it, it is not clear that we should expect labor force participation—and therefore employment—to return to pre-pandemic levels.

Alternative Measures of Labor Market Performance

While labor input remains lower than before the pandemic by some measures, anecdotal reports from businesses suggest that hiring workers is difficult in the current environment. How can we reconcile these two observations? Additional measures of labor market performance can help provide a more comprehensive reading of the state of the labor market than simply looking at the number of jobs or hours worked.

One measure of labor market tightness used in the academic literature is the ratio of officially unemployed workers to job openings. This ratio is approaching an all-time low. In March, it was 1.2, which is lower than during the expansion before the 2007-09 recession but not as low as during the later years of the pre-pandemic expansion, when it was below 1. Nevertheless, the latest ratio suggests a very tight labor market, which would be consistent with anecdotal reports that it is hard to hire workers.

Broader measures of labor market performance—such as indicators that take multiple aspects into account—are also useful to examine. The level of activity indicator from the Federal Reserve Bank of Kansas City, for instance, suggests current labor market conditions are markedly better than those following the 2007-09 recession.


Alternative measures of labor market performance help reconcile the anecdotal reports we are hearing from businesses with what we are seeing from more traditional labor market indicators.

As the pandemic wanes, as more schools reopen to in-person instruction and as disrupted workers’ pandemic-related assistance comes to a close, more people will want and be in a position to accept jobs. The number of unemployed workers per job opening suggests that many of these workers should be able to find a job, which is what I expect to happen in the coming quarters.


  1. The overall labor force participation rate is projected to continue declining from 2019 to 2029, according to the Bureau of Labor Statistics’ projections released in September 2020 and discussed in this Monthly Labor Review article.
James Bullard 

James Bullard is president and CEO of the Federal Reserve Bank of St. Louis. In this capacity, he oversees the activities of the Eighth Federal Reserve District and is a participant on the Federal Reserve’s Federal Open Market Committee, or FOMC, which sets the direction of U.S. monetary policy. See more from President Bullard.