Job growth will likely top 6 million this year by November, putting us well on track for a full recovery by the end of 2022. Ahead of Friday’s release of the jobs report, I want to put the pace of this recovery in perspective compared with the much slower recovery from the Great Recession. Spoiler: If we continue with the average job growth we’ve seen already in 2021—581,600 per month—we would return to pre-pandemic labor market conditions by December 2022 (while also absorbing population growth). This job growth would be at a pace more than twice as fast as the strongest 10-month period in the recovery from the Great Recession (4.9% job growth versus 2.3%).
In October, job growth was 531,000. Even with the slower job growth in late summer due to the Delta-driven five-fold increase in caseloads, the overall pace of the recovery is promising. Back in June, my colleague Josh Bivens and I wrote that restoring pre-COVID labor market health by the end of 2022 would require creating 504,000 jobs each month from May 2021 until December 2022. In 2021 so far, job growth has averaged 581,600 jobs, and it’s been an even greater 665,500 jobs per month since May.
To restore pre-COVID labor market health doesn’t simply mean that we add in the remaining 4.2 million jobs to get us back to February 2020. It also means that we add enough jobs to absorb population growth since then, which gets us to a current jobs shortfall of 5.5 million. Continuing the current 16+ population growth rate through 2022 means adding roughly an additional 67,000 jobs per month over the next 14 months (November 2021 through December 2022). Arguably, this is an overestimate of the pace of working-age population growth given the size of the boomer generation, which includes many retiring workers. But, even at the current pace, the recovery is on track to hit that benchmark before December 2022. Hitting this end-of-2022 goal would likely see the U.S. economy reach 4.0% unemployment by mid-2022, even after absorbing higher levels of labor force participation.
Since the start of 2021, the pace of job growth is far above what we saw on average during the recovery following the Great Recession, when the pursuit of austerity resulted in a slow recovery. Over that period, monthly job growth averaged 1.6% (expressed as an annualized rate). The fastest 10-month pace of job growth during the entire period was 2.3% in 2014. It took 10 full years just to regain the pre-2008 unemployment rate low point, and even when this unemployment rate low was regained in 2017, it was partly because labor force participation still remained depressed.
Over the most recent 10 months—since January 2021—the monthly pace of annualized job growth has averaged 4.9%. This faster growth was fueled by the Biden administration’s American Rescue Plan, which effects have waned significantly over the last several months with no additional economic impact payments and the expiration of enhanced insurance benefits. However, the expanded child tax credits are certainly continuing to play in a vital role in unemployment supporting families (e.g., lessening food inadequacy), though it is currently set to expire at the end of 2021. Given that fiscal stimulus is winding down this year even with the longer-term investments provided in the much-needed Build Back Better Act, it is vital that Federal Reserve policymakers allow the recovery to continue without contractionary measures like interest rate hikes.
Of course, most of the rocky portions on the road to recovery thus far are caused by the ebbs and flows of the pandemic. With the recent emergence of the omicron variant, there is more uncertainty in the economic conditions moving forward. And, while a swift return to pre-pandemic labor market conditions would be welcome, we must not overstate the wonders of the pre-pandemic labor market. Black workers had a higher unemployment rate before the pandemic than white workers have now. Disparities in wage levels were wide and occupational segregation was rampant. Parents had trouble accessing high-quality child care and millions of people lived in poverty. We need to continue to make investments in our physical and human capital infrastructure to grow back faster and stronger.