4 possible explanations for the shocking decline in new jobs

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A “help wanted” sign hangs on a window of a restaurant on June 1, 2018 in Miami, Florida.

  • Experts don’t know exactly why April’s jobs report fell so short of expectations, adding just 266,000 jobs.
  • Possible reasons for the miss include too-generous unemployment benefits and temporary layoffs.
  • Experts say a labor shortage isn’t necessarily the main issue, and the news may not be as bad as it seems.
  • See more stories on Insider’s business page.

Economists thought that the economy would add a whole lot of jobs – about a million, to be exact – in April. Friday’s job reports turned that thinking upside down with a big surprise: The US economy added 266,000 jobs in April, falling significantly short of expectations.

In fact, unemployment even went up.

It’s a twist that left economists and economy journalists alike befuddled. It was especially shocking in light of March’s report showing a gain of about 900,000 jobs, and in a double whammy, the April report revised that figure down to 770,000. Also, the unemployment rate rose from 6% to 6.1%, while labor force participation actually climbed to 61.7% from 61.5%, signaling that more Americans are looking to return to work but also that more are getting classified as unemployed.

Insider previously reported on reasons that millions of Americans may be slow to return to work, like health concerns and the need to stay at home, but as results from Friday’s report found, but this dynamic rate hints it’s not as simple as a labor shortage. More workers seem to be joining the labor force – actively seeking out work – thereby bringing up the unemployment rate, but they also seem to be hesitating on taking new positions.

Of course, there’s no one explanation for why the jobs report fell so short, but it could be showing the nuances of what a post-pandemic recovery looks like, now that the economy has moved beyond March’s stimulus-powered gains and some of the lingering fissures are exposed. Separately, some economists have warned of the phenomenon called hysteresis, where the impact of a recession lingers in unemployment data after the events that caused it are gone.

Here are four reasons that might explain the jobs report disappointment:

(1) Unemployment benefits are too generous

Since the pandemic hit in 2020, Republicans and businesspeople have criticized expanded unemployment insurance – inserted into March 2020’s CARES Act by Democrats in the House – as too generous. Although the $600 federal unemployment addition to weekly benefits expired last year, it was soon reinstated at $300 per week, which President Joe Biden’s $1.9 trillion stimulus extended through September 6.

This jobs report is being seized upon as evidence that the benefits are still too generous. The US Chamber of Commerce has already called for their cancelation in the wake of the April jobs numbers.

Toby Malara, government affairs counsel at the American Staffing Association, told Insider in February that while unemployment has been “paramount” in helping people during the pandemic, it’s important to find a balance that doesn’t disincentivize people from returning to work.

Mercatus economist Michael D. Farren said in a statement that April’s jobs report might actually be better than it looks on the surface, and that while “changes to unemployment insurance probably are reducing labor supply, but workers’ primary inhibition to seeking employment is likely still COVID-19. But if the employment statistics next month look similar to April, Congress may need to take unemployment insurance back to the drawing board.”

Two states, South Carolina and Montana, have already moved to end additional pandemic unemployment benefits. Montana is opting instead to give workers a $1,200 back to work bonus, according to CNN.

But liberal economists – and the president – disagree with that assessment of UI. When asked at a Friday press briefing if enhanced UI bonus benefits were slowing down the return to work, President Joe Biden said: “No, nothing measurable.”

Later on Friday, Sen. Bernie Sanders wrote on Twitter that “We don’t need to end $300 a week in emergency unemployment benefits that workers desperately need. We need to end starvation wages in America. If $300 a week is preventing employers from hiring low-wage workers there’s a simple solution: Raise your wages. Pay decent benefits.”

(2) Women are being employed at lower rates

Overall, 165,000 women ages 20 and over left the labor force in April. Unemployment rates for Black and Latina women also remain elevated.

“If you added all of the women who’ve dropped out of the labor force since February 2020, the unemployment rate for women would be 8.1%, instead of 5.6%,” Jasmine Tucker, the director of research at the National Women’s Law Center, told Insider on Friday.

According to a Friday press release from the NWLC, it would take women 28 months to reach pre-pandemic – and that doesn’t account for potential population growth and more women graduating into the labor market.

Tucker said the April report underscores the need for more affordable and accessible childcare, as unemployed parents – especially mothers – contend with mixed reopenings and wanting to keep themselves and their families safe.

“While we’re reopening very expensive childcare centers, there’s going to be a mismatch there of who’s going to be able to afford to go back to work,” Tucker said.

(3) There are too many temporary layoffs

Counterintuitively, layoffs were unexpectedly high in the report, signaling companies are still struggling despite widespread evidence and expectations of an economic boom in 2021.

Approximately 2.1 million people said their pandemic unemployment was temporary in April.

That number is up from 2 million in March, both much higher than the 700,000 pre-crisis low and much lower than the pandemic-era peak of 18 million.

These temporary layoffs could make it harder for people to return to work, especially those with health concerns, that worry about getting sick should they choose to work again. This, accompanied by workers holding out for higher wages amidst large companies raising their minimum wages, could contribute to the poor jobs report.

(4) Seasonal adjustments could be off

Finally, a wonky explanation could account for some of the drop in job-gains data.

Seasonal adjustments measure and remove influences of seasonal patterns, like weather and holidays, to reveal how employment and unemployment change from month to month. Chris Rugaber, economy reporter for the Associated Press, flagged on Twitter that economists have noted potential seasonal adjustment issues: Non-seasonally adjusted jobs rose by about 1.1 million, showing that seasonally adjusting the data could be obscuring the true number of gains.

To be sure, this is still a difficult measure to parse right now. Seasonal adjustments typically follow a “more or less regular pattern each year,” per the BLS website, but 2020 and 2021 are far from typical years.

“You always have to take every data release with a grain of salt, and I think this one you have to take with a rock of salt,” Jan Hatzius, Goldman Sachs economist, told CNBC on Friday. But he still noted that the seasonally unadjusted number for the April report shows a gain of more than 1 million.

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