Economic Equity: COVID-19’s Impact on Employment

This 7-minute podcast was released Dec. 1, 2021, as a part of the Timely Topics: Economic Equity miniseries.

Serdar Birinci, economist at the St. Louis Fed

“The initial effects of the pandemic on employment were actually uneven across occupations,” says Serdar Birinci, economist at the Federal Reserve Bank of St. Louis, in an interview with Shera Dalin, media relations coordinator. “For example, management, business and finance occupations experienced less dramatic decreases, while employment … in services observed the largest effects.”

Transcript

Shera Dalin: Welcome to Economic Equity, a miniseries from the St. Louis Fed's Timely Topic podcast series. I'm Shera Dalin, your host for this episode, and today I'm speaking with Serdar Birinci, an economist with the Federal Reserve Bank of St. Louis. Thanks for joining me today, Serdar.

Serdar Birinci: Thanks for having me, Shera.

Dalin: So since the beginning of the COVID‑19 pandemic, you've been dissecting how the labor market has been affected. And based on your collective research, can you give us an overview of how the pandemic affected people based on their type of job?

Birinci: Sure. Let me actually start with the early effects of the pandemic. So aggregate employment as a percentage of its January 2020 level actually sharply decreased to 86% in April 2020 relative to January 2020. And, importantly, the initial effects of the pandemic on employment were actually uneven across occupations. For example, management, business, and finance occupations experienced less dramatic decreases, while employment in especially, say, in services observed the largest effects.

The pandemic crisis also had negative effects among those who did not lose their jobs, so meaning even employed individuals were negatively affected. For example, the average weekly hours of work among the employed decreased at the onset of the pandemic. Again, most of the largest effects were seen in the service sector. And after this big initial shock, both the employment and hours recovered dramatically after April 2020. Currently, we are already close to the pre‑pandemic level, say, in terms of the unemployment rate. And, also, there seems to be some more room for additional employment gains going forward.

Dalin: So what's happened to employment since the initial job losses for lower‑wage workers?

Birinci: That's a great question, a very important question, actually. So let's imagine that we rank people based on their labor earnings and group them into five equally spaced bins such that the first group has the lowest earnings and the top or the fifth group has the highest earnings. So then at the start of the pandemic, the COVID‑19 recession had disproportionate effects on the job loss rates of these groups. From January to June 2020, the job separation rate of the first group increased from around 2% to around 11%. So there was a 9 percentage points increase. On the other hand, the job separation rate of the top group increased from about 0.5% to about 2%. So only a 1.5 percentage point increase. So as you can see, job losses were concentrated among those who were at the lower end of the income distribution. A few months after the big hit, job loss rates started to decline; however, the decline in the job loss rate was slower for low-income workers. So they experienced not only largest increase in their job loss rates, but also a slower recovery.

Dalin: You also found some interesting results about how the pandemic affected dual‑earner households. Can you explain what you found?

Birinci: Sure. Again, the effects were different based on the earnings. So now imagine that we group households to the same five bins, but now based on their labor earnings of the primary earner of each household, so the one that earns the most among the couple. Then among these households and among those who are at the bottom group, dual employment rate at the start of 2020 was around 80%. On the other hand, for those at the top, the top income group, dual employment rate was around 98% already. So as you can see, to begin with, dual employment rates are higher when primary earner's income is actually larger.

And at the start of the pandemic, the decline in dual employment rate for the bottom group was very large. So it declined from about 80% to 40%. So huge decrease. On the other hand, it was much smaller decline for the top group. It only decreased from 98% to 90%. And the other problem is that the recovery of dual employment rate was especially slower for the bottom group, and their dual employment rate is still significantly lower than its pre‑pandemic level right now.

Dalin: You studied how often workers changed jobs during the pandemic versus the Great Recession. How do job switching rates compare?

Birinci: So during the Great Recession, there was a large decline in the job switching rate among employed workers. And the problem was that after the Great Recession, it took around five years for the job switching rate to come back to its pre‑Great Recession level. And this was the case for almost all income groups.

During the pandemic, yes, there was a decline in the job switching rate, but it immediately recovered after a couple of months. So this was the biggest difference. It's very different than what happened during the Great Recession. In the pandemic recession right now, the job switching rate very quickly bounced back to its pre‑pandemic levels.

Dalin: Do you have a sense for why we bounced back so quickly during the pandemic?

Birinci: Sure. Yeah. Actually, one of the reasons why is that after the lockdown was relaxed and workers were able to switch out, especially in the service sector, that helped quite a lot. But in the Great Recession, the problem was that this was a shock for primarily for the entire economy, so it took quite some time for workers to find a job that are suitable for their matches.

Dalin: And so what are the implications of this job switching rate and particularly for wages?

Birinci: Research has shown that job switching rates strongly correlate with future wage growth. This is intuitive because most of the time people switch jobs for higher salaries. So higher job switching rate implies that in the future, wage growth is going to be larger as well. And now given that job switching rates recovered quickly after the pandemic recession, we can now expect the higher future wage growth in the coming months.

Dalin: Well, thank you for sharing your analysis with us, Serdar. And we're looking forward to learning more about your upcoming research.

Birinci: That's so much for having me.

Dalin: For more from our Economic Equity podcast miniseries and to see more of Serdar's research, visit the St. Louis Fed's website at stlouisfed.org. You can also stream and subscribe to all our podcasts on Apple Podcasts, Spotify, and your favorite podcast app. Thank you for joining us.