The Great Reshaping of the US Labor Market

Last Friday’s NFP Report was highly anticipated. Traders and investors already anticipated the bearish numbers and the high unemployment level – we might say the bad news was already priced in. After all, even if the data somehow manage to beat expectations, what is the difference between a 16% and 14.7% Unemployment Rate? 

As it turns out, the labor market changes dramatically. Not surprisingly, unemployment is higher for industries with lower remote-work abilities such as leisure and hospitality, construction, or transportation and utilities.

For those sectors and industries where remote-work is possible, the unemployment rate was not that elevated. Moreover, the report offered investors an even more important clue – which type of earners lost their job?

Lowest Earning 20% the Most Affected

Over 35% of the lowest earning 20% of workers lost their employment in April. While the data is based on the ADP release (private payrolls) and not the NFP (non-farm payrolls), it remains relevant because it uses percentages to explain the job loss. If you want, it is a good sampling that provides an educated guess about the state of the US labor market.

A few things deserve mentioning at this point when looking at the jobs data. One is related to the economic recovery.

Many of the affected workers are viewed as “temporarily” unemployed. In other words, they count as ready to take their job back once the economy opens up again in each state. That is a wrong perception by all metrics.

Judging by the magnitude and implications of this health crisis, some industries  will reshape drastically – if not disappearing altogether. As such, some of those said to be “temporarily” unemployed will  see their employers needing fewer people than previously expected.

The second thing to mention is the economic interdependence between industries and countries. For instance, the financial services industry, that adapted very well to remote work, cannot keep all its employees because the size of the industry will shrink.

Finally, the whole concept of remote work deserves a better understanding. The first thing that comes to mind is to just do your work from your laptop and deliver it online. After all, almost all companies use the cloud – right?

While this is true, it is the simplest way to look at remote work. What people fail to see is that suddenly they compete worldwide, not only locally, for the same job. If before the crisis location was an important factor, suddenly, it is not anymore.

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