People got thrown out of a rut and thought about how to move forward differently. We can see that increasingly in the numbers.
By Wolf Richter for WOLF STREET.
Momentous shifts in the labor market, brought on by the pandemic, are percolating to the surface, with millions of people not joining the labor force, with companies having trouble hiring as people don’t want to be hired under the current conditions, and with people striking out on their own to get out of the rat race and chase after their dream. Side-gigs that were started while working-from-home may have turned into full-time businesses, and these people quit their W-2 jobs – contributing to the record number of “quits” – and are now chasing after their dream, and the creation of tiny businesses has exploded. And wages are surging.
For the second month in a row, households reported large gains in people who are working – including the self-employed and people starting their own businesses. But employers reported that they’d added only a smallish number of employees to their payrolls, which don’t include the self-employed and those striking out on their own.
Hourly wages jumped more than expected. And the unemployment rate dropped to 3.9%, the lowest since February 2020, when it was 3.5%, which had been the low since the 1950s.
The labor force ticked up only a minuscule amount and remained way below the pre-pandemic trends as many people decided for whatever reason to remain on the sidelines.
The reference period for all this drama is the week around December 12, before the spike in omicron cases, and it’s based on two large-scale surveys, one of households and the other of employers (“establishments”), released today by the Bureau of Labor Statistics.
It adds more color to the picture of a labor market that has changed in dramatic ways.
Employers added just 199,000 people to their payrolls, based on surveys for the payroll week that included December 12. Over the past three months, employers added 1.1 million employees. This brought the total number of employees on the payrolls to 148.9 million, still down by 3.6 million from February 2020 and about 8 million below pre-pandemic trend. In other words, employers are now able to hire at the pre-pandemic pace but are not able to catch up.
Households reported that the number of working people, including the self-employed and entrepreneurs, jumped by 651,000 people in the reference week of December 12, and by a massive gain of 2.17 million people over the past three months, bringing the total to 156.0 million people who’re now working. This was still down by 2.8 million from the total in February 2020, and about 7 million workers below trend, but they’re catching up with pre-pandemic trends (red line).
This is the image of the disconnect.
It speaks of people choosing to be self-employed or starting their own thing, from ecommerce retail operations out of the garage to transaction lawyers leaving a law firm to start their own M&A shops out of their house, and taking their clients with them, during the biggest M&A boom the world as ever seen. These folks are tracked by the household surveys, but not the establishment surveys.
The average hourly wage jumped by $0.19 for the month, the biggest increase since April 2021. In the data going back to 2006 until the pandemic, there had never been a $0.19 increase per hour. Year-over-year, the average hourly wage, at $31.31, jumped by 4.7%.
The labor force and “labor shortages.”
The labor force – people who were either already working or who were actively looking for a job in the four weeks prior to the survey of households – ticked up by only 168,000 people in December, which brought the three-month gain to 823,000.
This leaves the labor force down by 2.3 million people from February 2020 and by 5.2 million from trend, while employers were desperately trying to fill an enormous 10.6 million in job openings.
Job openings – based on surveys of HR departments, not online job postings – started to spike above pre-pandemic trends in February 2021, surpassed the 8-million level for the first time in March 2020, surpassed the 10-million level for the first time in June 2021, and have been above 10 million every month since.
This mind-boggling spike in job openings has been going on for 10 months, indicating from another angle just how hard it is for employers to hire people and how reluctant people are, despite higher wages, to take those jobs:
And people feel freer than ever before to quit their jobs to start a new job or a new activity or go rest on their laurels and spend more time with their inflated assets. These “quits” at private-sector employers started spiking in March 2021, hit an all-time record in April 2021, and continued to spike, hitting another record in November:
It’s hard to believe that the labor market would go back to the pre-pandemic normal. Too many things have changed. Some people have massively benefited from the pandemic of asset-price inflation, and it changed how they look at work, and the need to work, including many people who’ve just had enough and retired.
Government stimulus has provided breathing room for other people to reevaluate how they want to move forward. Businesses have changed too. Working from home at least part of the time is now seen as a benefit by employees and as a cost-cutting measure by employers. But working from home allows people to experiment with side gigs and develop new ideas and ease into striking out on their own. The pandemic has thrown people and businesses out of a rut, with some surprising consequences for the labor market.
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