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What to expect from the job market in 2021

Indeed Chief Economist Jed Kolko joins Yahoo Finance Live to discuss the 2021 job market outlook.

Video Transcript

- Investors are hoping for a bounce back in the labor market when we get the year's first jobs report later this week. Economists are expecting just 50,000 non-farm payrolls added back in December, this coming after the US economy added just 245,000 back in November. And that marks the slowest pace of payroll gain since April's declines.

Let's bring in Jed Kolko. He is Indeed's chief economist. And Jed, how much of this momentum has really shifted as a result of the case counts we have seen rising across the country with this pandemic?

JED KOLKO: Thanks for having me here. There are a few reasons why the momentum is slowing down. One is that we saw a pretty impressive rebound over the summer that wasn't going to last. And so a lot of that initial rebound was some companies that were calling people back that had been temporarily furloughed, bringing people back to work. So we got a lot of the easier gains in the labor market in this recovery over the summer. And so now we're trying to make some of the more difficult gains.

Right now this surge is probably slowing down the economy, though the surge right now is worse than it was in the spring, but probably it's having less of an effect on the economy than that first surge did in the spring. That's because people are starting to adapt. Companies have figured out how to do some of their business in pandemic mode, and there's also pandemic fatigue. People aren't as strict, necessarily, about their behaviors as they were when there was a lot more uncertainty back in the spring.

- Yeah and Joe, I mean, you talk about that an adaptation, I guess, on the part of some companies. Of course it's harder for companies who are in the services sector to adapt to a work from home environment. Say if you're a theater company or a cruise line here, there's only so much you can do. But you've talked about maybe that bifurcation in employees impacted by this and the work from home space but also on the parenting side, noting that mothers with children seem to be the most hardest hit in this as well. So how is that kind of shaking out in this kind of lumpy recovery when you look into the labor side of things?

JED KOLKO: Absolutely. There are definitely people, sectors, and places that are probably in for more long-term damage from the pandemic. Certainly mothers who have had the additional burden of having kids at home and not in school or daycare, they've taken much more of the burden. It has hurt employment for mothers more than even for fathers or for women without children. And so that's one area of longer term pain.

Another is sectors that can't bounce back easily. It is easier for restaurants to reopen when people are back out able to spend the way they used to. Then it will be for other kinds of travel or companies that support business conferences, sectors that might take longer to recover even after more and more people are vaccinated. So huge differences across different people, places, and sectors.

- Yeah. And Jed to your point about restaurants, we've heard from a lot of restaurant owners who are saying, these are going to be the toughest months for us, largely because of the cold weather and indoor dining being largely restricted. How much of a pickup do you anticipate from this latest round of the Paycheck Protection Program? Some businesses would argue that it was really critical in allowing them to keep employees on the payroll early on in the pandemic. But we are several months removed from that program expiring, at least the initial phase. This latest stimulus bill that was signed by the president, how significant do you think that will be in terms of bringing those numbers up a little more?

JED KOLKO: I think this latest stimulus or relief bill is very important for supporting the labor market, supporting both businesses and households during this period. Right now I think it's a bit of a race to see whether we can combat this virus surge and get enough people vaccinated before this round of relief runs out. It may be that this period of relief is shorter than what we need, based on what happens with the virus and the vaccines.

- And Jed, I mean, I don't want to overlook, kind of the progress that was made in year end in 2022. When you think about earlier in the spring when we saw lockdowns really first going into effect you had some pretty wild unemployment forecasts, and we beat those. It was largely a stronger recovery than a lot of people were expecting. So, I mean, when you look ahead to 2021, what are the expectations to kind of see improvement on the unemployment front, since it sounds like it's going to be a lot harder from here to see the number drop much more?

JED KOLKO: Right. So at this point, when we look at unemployment, we look at payroll numbers, 2021 is almost certainly going to be better than 2020, but still not back to what we had pre-pandemic. Remember, when the pandemic started, unemployment was around a 50-year low. Payroll growth was strong. And it meant that wages were rising, including for people who make less. So we saw some gaps in the labor market starting to narrow. That's what we get when there's a tight labor market in an economy that's really running hot.

Even with the improvement that we're likely to see in 2021, we're probably not going to get back to that kind of labor market this year or maybe even next year. There's still going to be some longer term damage, both in terms of people who will have been out of the labor market and will find it hard to get back in, businesses that may take a while to ramp up, and some sectors where we'll see new businesses open but there'll be a lag between what we see some businesses shutting down and new businesses coming in to replace them.

- And Jed, looking ahead to that report, beyond the headlines, what's the one number that you're going to be looking to see how much progress has actually been made in the labor market?

JED KOLKO: The number that I look at beyond the headline numbers is what's happened with permanent unemployment. So much of the unemployment that we had during this pandemic was temporary unemployment, people who were furloughed, many of whom got recalled. That's why we saw such a big spike in unemployment and so much recovery.

When you focus though on people who say that they permanently lost their job, it's a much lower number, but it hasn't improved, and that's probably one of our single best measures of how much longer term pain will still need to work through. Right now that number is at the highest point it's been during the pandemic. So I'll be looking very closely to see if we get any improvement in that core unemployment rate that takes out the temporary worker.