In the first half of 2021, the economy added more than 4.2 million jobs, a rise of almost 3.0 percent, as it rapidly added back jobs lost during the pandemic-related recession.
In a recent report in July 2021, Jason Furman and William Powell documented that the recent job transition rate from unemployment to employment was somewhat lower than expected given the job opening rate. The job opening rate averaged 5.6 percent in the first six months of 2021. It had previously never been higher than 4.8 percent — a peak hit in 2018 — and usually is well under 4.0 percent. Given this backdrop, this article investigates how demographic groups are transitioning from unemployment into employment and how that compares to their historical relationship between job openings and transitions.
Effects by Race and Ethnicity
Using the Current Population Survey, we investigate the month-to-month work transition rate of unemployed US workers since 2001 and report the annual aggregated employment transition by racial group. Figure 1 shows the predicted rate of transitions from unemployment to employment for whites, Blacks, Hispanics, and Asian American workers, based on the average job opening rate for the year. As can be seen, Black and Asian American workers have considerably lower transition rates than white and Hispanic workers.
In the first six months of 2021, 18 percent of Black and 20 percent of Asian American unemployed workers gained a job, which is around 5 percentage points lower than the rate of re-employment for white and Hispanic unemployed workers. Although unemployment among Hispanic workers usually is higher than that of white workers, their rate of moving into jobs does not look worse than that of their white counterparts, typically outperforming transition rates among unemployed whites, often by wide margins.
To show how racial and ethnic groups transitioned into jobs in the first half of 2021 compared to their past patterns, Figure 2 compares the transition rate for the first six months of the year with the predicted rate (which is illustrated in the trend line) for each group, given the rate of job openings.
In the first quarter of 2021, white and Hispanic unemployed workers were mostly on the predicted path for regaining jobs based on the rate of job openings, although this pace slowed down in May and June. This summer, Black and Asian American unemployed workers were further off track to meeting the expected employment transition based on the job opening rate. For example, about 20 percent of Black, and 25 percent of Asian American unemployed workers gained jobs in June, far below the predicted rate of 30 percent given the job opening rate. This led to a gap between the predicted rate of re-employment and the actual rate of reemployment for the first six months of 2021 of 8.5 percentage points for Black unemployed workers and 6.4 percentage points for Asian American unemployed workers. This compares to a gap between predicted and actual rates of reemployment of roughly 3 percentage points for white and Hispanic unemployed workers (Table 1).
Effects by Gender and Age
We also examined how job transition rates behaved relative to the overall market by workers’ gender and age. Transition rates do not appear to differ significantly between men and women. Women experienced a relative slower exit from unemployment compared to men: 7.3 percentage points below the predicted value given the job opening rate, compared to 6.8 percentage points for men. Somewhat surprisingly, among all unemployed workers, 16 to 19-year-olds were the only group that outperformed with respect to month-to-month employment transition in the first six months of 2021. This mirrors the unusually low unemployment rate for teenagers that we have seen thus far this year.
We might expect to see a slower pace for 16 to 19-year-olds in the coming months, but their job prospects seem to be quite good at the moment. This could be due in part to the current state of the labor market, in which certain sectors, like the service sectors or hospitality, lost workers during the pandemic and now find it difficult to hire workers. Given their lack of work experience in jobs in other sectors, young unemployed workers may find it relatively easy to refill those vacancies. It is likely also the case that young people have fewer fears of the pandemic and are less likely to have family responsibilities that might keep them from working.
By contrast, unemployed workers in their later prime age appear to have a slightly lower rate of gaining jobs. With years of work experience, some of them might want to switch to better jobs or change industries and may be confident that they will find one, given the unusually high number of job openings.
Why This Matters
The pandemic has created an extraordinary labor market situation. During the shutdown last spring, we saw unemployment rates unequaled since the Great Depression. As the economy reopened, we saw extraordinary job growth and rapid declines in unemployment. Looking at standard measures like unemployment and employment rates, the labor market would look reasonably healthy in August of 2021, although “healthy” still implies large amounts of discrimination.
However, we know that in many ways the labor market is very far from normal. In many sectors, workers are still finding it difficult to get reemployed. We also know that there appears to be far more turnover than we would ordinarily see in the labor market.
This analysis provides insight into the extent to which different groups are or are not transitioning from unemployment to employment. While we cannot directly determine the reason for gaps in transition rates from these data, it can be suggestive. For example, the rapid transition rates for teens likely indicates less fear of the pandemic and workers who are less picky about their jobs.
The unusually low transition rates among older workers could stem from a combination of difficulty finding jobs, fears about the pandemic, and workers being more selective about their job choices. The unusually low rates of transitions among Blacks and Asian Americans could reflect similar issues, as well as discrimination in the labor market.
Clearly this is a labor market in which many workers are facing considerable hardship, while others are seeing unusual possibilities. Over 60 percent of current jobholders looked for new jobs in late summer, seeking expanded benefits and more workplace flexibility, besides better pay. More than half the workforce anticipates looking for new jobs in the next 12 months. As the economy moves back towards full employment and the pandemic is hopefully controlled, we may end up with a labor market that looks very different from the one that existed before the pandemic.
This first appeared on CEPR.