Puzzle overhanging job market: When will more people return?

When the U.S. government issues the September jobs report on Friday, the spotlight will fall not only on how many people were hired last month. A second question will command attention, too: Are more people finally starting to look for work?

To an extent that has surprised economists, many people who lost or quit their jobs during the pandemic recession have yet to look for work again despite a robust economic rebound that has left many employers desperate to hire.

Across the country, widespread and persistent labor shortages have hampered industries from restaurants and hotels to manufacturing and construction. Expectations that more applicants would flow into the job market in September as schools reopened and federal unemployment benefits ended have dimmed. A key reason is that coronavirus cases stemming from the delta variant remain high, although the pace of confirmed infections has slowed in recent weeks.

Speaking at a news conference last month, Federal Reserve Chair Jerome Powell acknowledged that a surge of job seekers didn’t likely occur last month, largely because of a renewed fear of infection.

“It didn’t happen with any force in September, and a lot of that was delta,” Powell said.

Many economists still think that most of the roughly 3 million people who lost jobs and stopped looking for work since the pandemic struck will resume their searches as COVID wanes. It took years after the 2008-2009 recession, they note, for the proportion of people working or seeking work to return to pre-recession levels. The government doesn’t count people as unemployed unless they’re actively looking for jobs.

Still, there are signs that some of the factors that have kept many jobless people on the sidelines might be starting to ease. If so, a larger pool of job seekers might have helped boost hiring in September—or, if not, could do so in the coming months.

According to a survey by the Census Bureau, for example, the number of people who aren’t working because they must stay home to care for a child declined by half in September compared with June. That figure had barely dropped last fall, when many schools remained closed and conducted virtual learning. The new census figures suggest that more parents, particularly mothers, might have rejoined the workforce last month as the school year began and their children returned to school.

In addition, an August survey by the job listings website Indeed found that the proportion of unemployed Americans who said they’d like to find a job once the school year began had more than doubled from just two months earlier.

Yet there are also signs that it might be too soon to expect a flood of parents to have rejoined the labor market. Lael Brainard, a member of the Fed’s Board of Governors, noted in a recent speech that COVID-19 outbreaks in late September caused 2,000 schools to close for an average of six days in 39 states.

“The possibility of further unpredictable disruptions,” Brainard said, “could cause some parents to delay their plans to return to the labor force.”

Several enhanced unemployment benefits ended in early September, including a $300-a-week federal supplement as well as programs that, for the first time, covered gig workers and people who were jobless for six months or more. So far, the ending of those programs appears to have had only a small effect on the number of people seeking work.

Governors in about 25 states ended the $300 benefit before the nationwide expiration in September. Research by economists at Goldman Sachs found that unemployed people who were looking for work were much more likely to take jobs when their benefits ended. But the early cut-offs did not cause people on the sidelines to start searching again, Goldman concluded.

Scott Sureddin, chief executive of DHL Supply Chain North America, said he believes that the ending of supplemental unemployment aid has boosted the number of applications his company is receiving, even though the number of job-seekers remains below pre-pandemic levels. The company plans to hire about 12,000 temporary employees for the holiday season. So far, it has filled about half those jobs.

The company has raised pay for warehouse workers from $15 an hour, before COVID struck, to roughly $18 to $20, Sureddin said. The company also centralized its hiring so it could bring people on board faster—before another employer could hire them.

Still, finding enough drivers remains a challenge, Sureddin said, just as it was before COVID. Many people are reluctant to drive long routes away from their families for an extended period. The company is offering more flexible schedules at its warehouses, in part to accommodate parents.

“A lot of people are changing careers based on where they want to work, and whether they can spend more time with their family,” he added.

Another reason workers are scarce is a surge in retirements among older, more affluent workers whose home equity and stock portfolios have surged since the pandemic struck and who have managed to build up savings. Goldman Sachs estimates that about 1.5 million people have retired who wouldn’t have before the pandemic upended the economy. Many of these people will likely stay retired, economists expect.

In the meantime, fear of COVID continues to keep some would-be job seekers on the sidelines, notably those who previously worked in public-facing service jobs at restaurants, bars, hotels and retailers.

“Folks are just hesitant to take hourly jobs with a high likelihood of interacting with the public,” said Dave Gilbertson, vice president of UKG, a software company that tracks the shifts worked at its 35,000 client companies. Its data has closely matched the government’s jobs numbers this year.

Gilberston said that UKG’s data points to modestly better hiring in September compared with August. He said the delta variant, which sharply slowed hiring in August, reduced the number of shifts worked last month in the Southeast, where COVID cases soared in late summer.

Brainard noted that the number of people not working because they had COVID or were caring for someone with the disease doubled between July and early September, according to Census data.

Economists have forecast that employers added 488,000 jobs in September—about half the gains in both June and July but well above August’s sluggish 235,000 job growth. They expect the unemployment rate to drop from 5.2% to 5.1%.

“It may just be that it’s going to take more time,” Powell said at his news conference last month, “but it still seems that inexorably, people will … get back to work when it’s time to do that.”