US labor market makes gains in October, but many are staying out of the labor force
The US labor market recovery picked up in October 2021. The economy added 531,000 jobs, up from around 400,000 in August and September. The official unemployment rate continued its steady decline hitting 4.6 percent, just 1.1 percentage points higher than it was before the pandemic. However, the "realistic" rate—which adjusts the official rate to account for misclassification and the unusually large decline in labor force participation—was slightly higher at 6.0 percent.
Even with the faster pace of job growth, the economy remains 6 million jobs short of pre-pandemic projections and will take additional time to fully recover. If job growth continues at its October pace, it will take another 13 months to return to its pre-pandemic trajectory.
Millions of unemployed workers stopped looking for work when the pandemic hit because of the reduced likelihood of finding employment and the pandemic itself. Not all of them have returned. Instead, the labor force participation rate has been almost unchanged since last summer.
Roughly half of the continued shortfall in labor force participation can be attributed to shifting demographics and labor market conditions, but several factors contributed to the other half of the shortfall. Workers may still be concerned about contracting COVID-19 or anxious generally over the pandemic. Some have accumulated savings allowing for more flexibility in returning to work. Some of these factors should diminish as the pandemic recedes, while others may take longer to resolve or could be permanent. But returning to the pre-pandemic employment trajectory will require a substantial increase in labor force participation.
This PIIE Chart is based on research in Jason Furman and Wilson Powell III's blog, US makes solid job gains in October but millions are still on the sidelines.