February 10, 2021

The Labor Market Remains a Long Way Off from its Pre-Pandemic Levels

New data from the Bureau of Labor Statistics (BLS) show that the unemployment rate declined to 6.3 percent in January from its December level of 6.7 percent. However, the current unemployment rate remains quite high compared to its pre-pandemic level of 3.5 percent, with 4.4 million more unemployed workers than there were before the pandemic as well as 4.3 million fewer workers in the labor force.

The unemployment rate for January remains high relative to its pre-pandemic level


In January, the economy added just 49,000 jobs. The industry sector with the largest number of gains was professional and business services. BLS notes that the gains in that sector were primarily driven by new jobs in temporary help services, which includes occupations as varied as office clerks, nurses, and construction laborers. The number of government jobs also increased, with gains in state and local education outpacing a decline in federal employment.

In January, most job gains were in professional and business services


The Unemployment Rate Does Not Tell the Whole Story

A large number of workers continue to file for unemployment compensation. In the week that ended on January 30, there were 779,000 new claims (such data are released on a weekly basis). That continues the trend of the past 23 weeks, during which claims have hovered between 700,000 and 1,000,000 per week.

Claims for regular unemployment insurance remain high


Labor market conditions remain more difficult for non-white workers. The unemployment rate for white workers increased by 1.8 percentage points from March 2020 to January 2021; meanwhile, the increases for Black, Asian, and Hispanic workers were around 2.5 percentage points each over that period.

Unemployment rates have increased significantly across racial and ethnic groups during the COVID-19 pandemic


Standard unemployment rates do not capture all of the negative effects that the coronavirus pandemic is having on the labor market. For example, the overall unemployment rate would be 7.4 percent if it included people who have stopped looking for work during the past four weeks. (The headline unemployment rate does not count those people as unemployed because they are considered outside of the labor force.) Including the 6.0 million people that are working part time despite desiring full-time work would bring the rate to 11.1 percent. In other words, one in nine American workers are currently affected by the ongoing downturn in the labor market, and not all of those individuals are included in the headline unemployment rate of 6.3 percent.

The official unemployment rate does not include many workers that have been affected by the COVID-19 outbreak


As the economy struggles and many people remain out of work, the federal budget will be affected in a number of ways. Income and payroll tax receipts will be lower than would otherwise occur because fewer people are working. Also, payments for unemployment compensation and other safety net programs will remain relatively high, in part as a result of recent legislation to continue certain unemployment benefits. Enacted legislation to provide relief to individuals and businesses from the pandemic to individuals and businesses from the pandemic is projected to add about $3.5 trillion to the cumulative deficit from 2020 to 2030. However, there is no reasonable alternative — providing assistance to individuals who lose their jobs, especially during a global health crisis, can save the economy from suffering even further damage.

Related: Here’s Everything Congress Has Done to Respond to the Coronavirus So Far

Image credit: Photo by John Sommers II/Getty Images

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