Key Themes and Takeaways
  • The employment gap—the difference between actual and seasonally expected employment— has recovered from its April low of ‒16.3% but remains depressed at ‒7.6% in September.
  • Four service sectors: Leisure and Hospitality; Retail Trade; Professional, Business, and Other Services; and Education and Health Services, account for 77% of the employment gap.
  • Construction and Manufacturing are not major contributors to the employment gap nationally, although these sectors do significantly impact some states.
  • Employment gaps vary considerably across states. August employment gaps can largely be explained by state experiences during the pandemic’s initial phase through April and by regional clustering.
  • Variation in employment gaps among states has become increasingly independent of the intensity of the coronavirus pandemic in those states.
  • Employment in the United States appears to be on a path of gradual recovery. However, the rate of job recovery has slowed from July to September and the proportion of unemployed workers on permanent layoff has steadily increased.

Introduction and Overview

Since the massive initial wave of layoffs from the coronavirus (COVID-19) pandemic, labor markets are stabilizing, and a clearer picture is emerging of how coronavirus has impacted jobs across sectors and states. Unlike the Great Recession, during which peak unemployment rates developed gradually and were sustained for several years, nationwide job losses peaked in the first two months of the coronavirus recession from February to April and have gradually recovered since then. But while the worst of job losses from the coronavirus pandemic appear to be past, the coronavirus recession continues. Restoring employment levels to pre-pandemic trajectories is likely to take months or even years, especially for the states and economic sectors hardest hit, and some jobs will not come back at all.

Taking stock of the coronavirus recession to date, this report focuses on four key ideas:

What Is an Employment Gap?

Our analysis relies on data from the US Bureau of Labor Statistics’ (BLS) monthly jobs reports at both national and state levels. Our employment metrics are expressed on a seasonally unadjusted basis rather than a seasonally adjusted basis. By design, seasonally adjusted employment “takes out” seasonal variation and expresses monthly employment levels on a normalized annual basis. As a consequence, seasonal adjustment understates actual employment during seasonal peak months and overstates actual employment during seasonal trough months. In our view, metrics of employment change on a seasonally unadjusted basis express month-to-month job losses from the coronavirus pandemic as numbers that are both intuitive and directly relevant to workers compensation.

In the June issue of the Quarterly Economics Briefing (QEB), we discussed employment (or job) losses during the coronavirus pandemic through May. The employment change for a given state and economic sector in the current month was defined to be the percentage change in the state’s actual employment in that sector relative to February, our selected pre-pandemic benchmark.Private employment excludes government and farm employment.

In this issue, we introduce the concept of an employment (or job) gap. The employment gap for a given state and economic sector in the current month is defined to be the percentage difference in the state’s actual employment in that sector relative to expected employment in the same month. For example, the employment gap in August accounts for seasonal employment variation that would be expected from February to August in a normal, non-pandemic year, whereas the employment change from February to August does not.To obtain a state’s expected employment level for August, we bring forward the state’s employment in February 2020 using BLS 2019 seasonality factors for the months from February to August (seasonality patterns for other recent years are similar). Thus, our estimate of expected employment in August is conditional on actual employment last February and adjusted for expected seasonal variation from February to August in a non-pandemic year.

In some economic sectors, such as Construction and Education, seasonal employment variations from winter to summer are substantial, making the employment gap concept a more meaningful measure of the pandemic’s effect on jobs than the simple difference in actual employment between two months.

A related concept is the employment gap contribution, which expresses the employment gap for a given state and sector as a percentage contribution to the state’s overall employment gap.The employment gap contribution for a given state and sector is obtained by multiplying the employment gap for that state and sector by the sector’s share of state employment. As an arithmetic identity, a state’s overall employment gap is the sum of employment gap contributions from all sectors. National employment gaps and employment gap contributions are defined in the same way as for states.

Service Sectors Are Driving Employment Gaps

Table 1 shows actual and expected national employment levels in September and April, together with employment gaps and contributions from different economic sectors.A sector’s employment gap contribution depends on its employment gap in the target month and its share of pre-pandemic national employment. For example, Leisure and Hospitality, a large employer nationally, had a –22.8% employment shortfall relative to its seasonal expectation in September and contributed 39.3% of national job losses, while Mining and Logging lost –14.1% of September jobs relative to seasonal expectation but contributed only 1.0% of the national job gap due to its much smaller share of national employment. Negative employment gaps indicate employment shortfalls relative to seasonally expected employment levels in either month. Since the initial wave of layoffs through April, national employment shortfalls across all economic sectors recovered during spring and summer but remain elevated in September. Roughly half of the employment gap due to the coronavirus pandemic—from the trough of ‒16.3% in April to ‒7.6% in September—has been recovered to date.

We organize economic sectors into three major groups.

The Big Four service sectors have been dominant drivers of the employment gap during the coronavirus pandemic through September. The Big Four service sectors accounted for 77% of the national employment gap in September and an equal or higher share in every month since April.

Employment gaps in the Big Four service sectors also account for a high and remarkably uniform proportion of employment shortfalls in every state.For state detail, see Table 2 at the end of this report. All of the Big Four service sectors are characterized by high physical proximity, low essentiality, or both. We define physical proximity to mean the degree of interpersonal contact associated with a service or activity and essentiality to indicate the degree to which a service is non-discretionary and cannot be postponed. Physical proximity and essentiality as determinants of coronavirus-related job losses were discussed in the June issue of the QEB.

Neither Manufacturing nor Construction are major contributors to the national employment gap in September, although employment is depressed in both sectors relative to what would be expected in a non-pandemic year. These sectors were significantly hit by job losses in April, but reduced employment gap contributions starting in July suggest that they have begun to adapt to the new pandemic environment.

However, employment shortfalls in Manufacturing and Construction are important in certain states, as we will discuss in the following section. The remaining sectors—Transport, Warehousing, and Utilities and Mining and Logging; and All Other, encompassing Wholesale Trade, Information, and Financial Activities—are minor contributors to employment gaps in most states, but important in a few states.

Regional Clustering Is (Still) Important

While variation in employment gaps among states has narrowed since April, it was still substantial in August.As of this writing, August is the latest month for which state employment data are available. State employment gaps in April ranged from ‒25% to around ‒10%; by August the corresponding range was from ‒14% to ‒2% with more than half of states below ‒8% (except Hawaii at ‒20%).

In the June issue of the QEB, we reported on state job losses during the pandemic’s initial phase through April. At that time, we noted regional patterns of state clustering. As states began to reopen in May and June, partial recovery of lost jobs through the summer months has preserved the patterns of geographic clustering that were already evident in April.

Figure 1 groups states by the magnitude of their employment gaps in August and April. In each month, numerical thresholds are selected to define three state groups by rank of their employment gaps: the two lowest quartiles (25 states collectively) and the two highest quartiles (12 and 13 states, respectively).