5-minute read | by: Jason Shihata, Credit Manager at EFFI Finance
Where are all the workers these days? Are they still receiving incentives to stay home or did they leave the market? The answer is, no and yes, and different for each age demographic.
The COVID-19 pandemic has caused unprecedented disruption to the labor market, affecting millions of Americans. In just two months – March and April 2020 – a staggering 22.2 million people were laid off, reaching the highest level of layoffs in history. The impact of the pandemic was felt differently by various age groups, as people responded in unique ways to the unprecedented challenges.
The pandemic prompted many workers to reevaluate their priorities, take time off, or opt for unemployment benefits, leading to a significant reduction in the labor force. With health concerns and discouragement also playing a role, the pandemic has transformed the workforce in ways that will likely have long-lasting effects.
Disproportionate Impact on 20-24 Age Group
The 20-24 age group was hit hardest by the pandemic’s impact on the labor force, with a staggering 8.6% reduction in their participation rate from January 2020 to April 2020. This age group experienced the most significant decline, likely because they are primarily employed in industries that are less suited to remote work and require in-person interaction.
Moreover, they typically have lower-paying jobs, so some individuals may have found it financially advantageous to rely on unemployment benefits. The pandemic’s impact on this age group highlights the vulnerabilities of young workers and their need for targeted support during times of economic crisis..
Resilience of Prime-Age Labor Force & Older Workers During Pandemic
In the wake of the pandemic, the prime-age labor force – workers between 25 and 54 – experienced a 3.2% drop in participation rate from January to April 2020. Interestingly, this age group was nearly three times less likely to exit the labor force than their younger counterparts.
The reason for this may lie in the fact that they are more likely to hold jobs that can be done remotely, giving them more flexibility to continue working. Moreover, they have more significant financial responsibilities, making them less likely to be influenced by unemployment benefits. The pandemic’s impact on the prime-age labor force highlights the importance of adaptability and the ability to work remotely in times of crisis.
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The oldest age group measured by the Bureau of Labor Statistics, those 55 and over, left the labor force at the lowest rate. During April 2020, the labor force participation rate was only 1.6% less as compared to January 2020. This group of the population is the most established in their careers.
The Labor Force’s Path to Recovery
After the early months of the pandemic, we saw a relatively robust return to work. Businesses were flush with liquidity, partially as a result of the PPP. Businesses also saw strong consumer demand for goods, as consumers spent less money on other areas. Between May and August 2020, more than 27MM Americans were hired. Similar to how the pandemic impacted different age groups in different ways, the return to work has also been different among the age groups.
The initial return to the labor force was relatively sharp for the 20-24 age group during April-October 2020. However, the labor force participation rate for 20-24 year-olds appeared to plateau in October 2020. The labor force participation rate for 20-24 year-olds has remained between 1%-3% lower as compared to the January 2020 labor force participation rate between October and February 2023. As of February 2023, the labor force participation rate for individuals between 20 and 24 years was 1% lower as compared to January 2020.
While it may seem that there are still challenges in finding new employees, by February 2023, the prime-age labor force had finally regained its pre-pandemic strength, representing a significant milestone for the labor market and the economy as a whole. The rebound of the prime-age labor force signals a positive outlook for employment opportunities and economic growth, offering a glimmer of hope in the aftermath of the pandemic.
“The total civilian labor force included 166.2MM Americans as of February 2023, an increase from the 164.3MM labor force as of January 2020.”
The labor force participation rate for those 55 and over shows an interesting trend. While those 55 and over left the labor force at the lowest rate of all age groups, they never really returned to the labor force. The April 2020 labor force participation rate for those 55 and over was 1.6% lower as compared to January 2020. The February 2023 labor force participation rate for those 55 and over was 1.8% lower as compared to January 2020. This implies that many people 55 and over retired for the long term.
The chart below outlines the changes in the labor force participation rate as compared to January 2020 for each age group. The red line outlines the change in the labor force participation rate for those 20-24 years, as compared to January 2020. The green line outlines the change in the labor force participation rate for those 25-54 years (prime-age labor force participation rate), as compared to January 2020. Lastly, the purple line outlines the change in the labor force participation rate for those 55 and over, as compared to January 2020.
While the labor force participation rate is still marginally lower for some non-prime age groups, the total size of the labor force is slightly higher as compared to pre-pandemic.
It may not seem like it, however the total number of laborers in today’s market is greater than what it was in early 2020. While the various demographics and age groups are affected differently, the good news for the companies based in the US is that there are plenty of workers. Now, to determine which workers fit your business culture and skillset is another matter.
Related: EFFI’s 2022 Annual Economic Review
SOURCES
https://fred.stlouisfed.org/
