LUNCH & LEARN DISCUSSION SERIES

The Employment and Wage Effects of the Pandemic Recession11:30 am - 11:35 amWelcome and IntroductionsMichael Greenstone, Milton Friedman Distinguished Service Professor in Economics; Director, BFI

11:35 am - 11:50 amThe Employment and Wage Effects of the Pandemic RecessionErik Hurst, Frank P. and Marianne R. Diassi Distinguished Service Professor of Economics, UChicago Booth School of Business; Deputy Director, BFI

11:50 am - 12:05 pmModerated ConversationKaren Anderson, Senior Director of Policy, Communications & External Affairs, BFI

Erik Hurst

12:05 pm - 12:30 pmAudience Q&A

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The U.S. Labor Market During the Beginning of the Pandemic RecessionErik Hurst

JOIN THE CONVERSATION: @BeckerFriedman #EngageBFI

Today

Use payroll microdata from ADP to chart the labor market at beginning of the PandemicRecession

1 Employment, both aggregate and disaggregated

2 Wages

3 Hours

4 Business shutdown/re-entry and employee recall

5 Employment response of state re-opening

3

Today

Benefits of Administrative Payroll Data?

BLS puts out monthly data on labor market conditions using both business and householddata (CES and CPS)

ADP Payroll Data

1 Have data for 26 million workers (about 1/6 of US workforce)

2 Broadly nationally representative by firm size and industry

3 Large samples and high frequency (allows for cross-location variation in state policies)

4 Linked employer-employee data (critical for studying worker recall)

5 Administrative data for wages (allows for measurement of nominal wage adjustments)

4

Benefits of Administrative Payroll Data?

Employment

Active and Paid Employment Since February

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

U.S

. Em

ploy

men

t Rel

ativ

e to

Feb

ruar

y 15

th

Paid Employment Active Employment

6

Active and Paid Employment Since February

Active and Paid Employment Since February

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

U.S

. Em

ploy

men

t Rel

ativ

e to

Feb

ruar

y 15

th

Paid Employment Active Employment

21%�employment�decline� =�~26.5�million�jobs

7

Active and Paid Employment Since February

Active and Paid Employment Since February

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

U.S

. Em

ploy

men

t Rel

ativ

e to

Feb

ruar

y 15

th

Paid Employment Active Employment

~7�million�job�rebound

8

Active and Paid Employment Since February

Paid Employment by Firm Size

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

U.S

. Em

ploy

men

t Rel

ativ

e to

Feb

ruar

y 15

th

1-49 Workers 50-499 Workers 500+ Workers

9

Paid Employment by Firm Size

Paid Employment Changes By 2-Digit Industry

Industry 2/15-4/25 2/15-5/30Arts, Entertainment and Recreation -50.7% -41.5%Accommodation and Food Services -45.5% -34.1%Retail Trade -28.7% -18.5%Other Services -25.0% -17.1%Transportation and Warehousing -21.7% -23.2%Real Estate, Rental and Leasing -20.9% -19.6%Wholesale Trade -17.6% -12.3%Administrative and Support -17.0% -17.1%Educational Services -16.6% -17.5%Health Care and Social Assistance -16.5% -8.8%Construction -13.5% -4.5%Manufacturing -12.4% -8.6%Professional, Scientific, and Tech Services -12.1% -9.1%Finance and Insurance -1.3% -0.7%

10

Paid Employment Changes By 2-Digit Industry

Paid Employment Changes By 2-Digit Industry

Industry 2/15-4/25 2/15-5/30Arts, Entertainment and Recreation -50.7% -41.5%Accommodation and Food Services -45.5% -34.1%Retail Trade -28.7% -18.5%Other Services -25.0% -17.1%Transportation and Warehousing -21.7% -23.2%Real Estate, Rental and Leasing -20.9% -19.6%Wholesale Trade -17.6% -12.3%Administrative and Support -17.0% -17.1%Educational Services -16.6% -17.5%Health Care and Social Assistance -16.5% -8.8%Construction -13.5% -4.5%Manufacturing -12.4% -8.6%Professional, Scientific, and Tech Services -12.1% -9.1%Finance and Insurance -1.3% -0.7%

11

Paid Employment Changes By 2-Digit Industry

Paid Employment Changes By 2-Digit Industry

Industry 2/15-4/25 2/15-5/30Arts, Entertainment and Recreation -50.7% -41.5%Accommodation and Food Services -45.5% -34.1%Retail Trade -28.7% -18.5%Other Services -25.0% -17.1%Transportation and Warehousing -21.7% -23.2%Real Estate, Rental and Leasing -20.9% -19.6%Wholesale Trade -17.6% -12.3%Administrative and Support -17.0% -17.1%Educational Services -16.6% -17.5%Health Care and Social Assistance -16.5% -8.8%Construction -13.5% -4.5%Manufacturing -12.4% -8.6%Professional, Scientific, and Tech Services -12.1% -9.1%Finance and Insurance -1.3% -0.7%

12

Paid Employment Changes By 2-Digit Industry

Paid Employment Changes By 2-Digit Industry

Industry 2/15-4/25 2/15-5/30Arts, Entertainment and Recreation -50.7% -41.5%Accommodation and Food Services -45.5% -34.1%Retail Trade -28.7% -18.5%Other Services -25.0% -17.1%Transportation and Warehousing -21.7% -23.2%Real Estate, Rental and Leasing -20.9% -19.6%Wholesale Trade -17.6% -12.3%Administrative and Support -17.0% -17.1%Educational Services -16.6% -17.5%Health Care and Social Assistance -16.5% -8.8%Construction -13.5% -4.5%Manufacturing -12.4% -8.6%Professional, Scientific, and Tech Services -12.1% -9.1%Finance and Insurance -1.3% -0.7%

13

Paid Employment Changes By 2-Digit Industry

Employment Declines by Sex

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

Em

ploy

men

t Cha

nge

Rel

ativ

e to

Feb

ruar

y 1s

t

Male Female14

Employment Declines by Sex

Employment Declines by Initial Wage Quintile

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

Em

ploy

men

t Cha

nge

Rel

ativ

e to

Feb

ruar

y 1s

t

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 515

Employment Declines by Initial Wage Quintile

Business Closure, Re-Entry and Recalls

Employment in Continuing Firms

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

U.S

. Em

ploy

men

t Rel

ativ

e to

Feb

ruar

y 15

th

Paid Employment, All Paid Employment, Continuers

Continuing firms are those firms that make regularly scheduled payroll 17

Employment in Continuing Firms

Distribution of Employment Gains 2/15-5/30, Continuing Firms

-100

-80

-60

-40

-20

0

20

40

10 20 30 40 50 60 70 80 90

Empl

oym

ent c

hang

e (%

)

Percentiles

1-49 employees50-499 employees500+ employees

18

Distribution of Employment Gains 2/15-5/30, Continuing Firms

Current Business Shutdown and Re-Entry

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

Shar

e of

Feb

ruar

y 15

th E

mpl

oym

ent

Shut Down Re-Entered19

Current Business Shutdown and Re-Entry

Decomposition Summary Relative to Feb 15th

Employment Declines Through April 25th

77.8% of employment decline due to continuing firms

28.0% of employment decline due to exiting firms

5.8% increase to “new” sample entrants

Employment Gains April 25th through May 30th

67.3% of subsequent increase due to net hiring in continuing firms

36.4% of subsequent increase due to employment gains in re-opening firms.

New sample entrants and new shutdowns roughly cancel

20

Decomposition Summary Relative to Feb 15

Firm Shutdown and Re-Entry: Firms < 50 Employees

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

Shar

e of

Feb

ruar

y 15

th E

mpl

oym

ent

Shut Down Re-Entered

About 50% of employment losses for small firms through late April was due to exit.21

Firm Shutdown and Re-Entry: Firms < 50 Employees

Firm Shutdown and Re-Entry: Firms > 500 Employees

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

Shar

e of

Feb

ruar

y 15

th E

mpl

oym

ent

Shut Down Re-Entered

22

Firm Shutdown and Re-Entry: Firms < 500 Employees

Firm Size of Re-Entering Firms (Relative to Feb 15th)

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Median (Mean) re-entering firm is currently at 25% (40%) of their February size.23

Firm Size of Re-Entering Firms (Relative to Feb 15)

Share of Re-Entering Firms’ Employment that are Recalls

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Nearly all employment in re-entering firms are recalled-workers. 24

Share of Re-Entering Firms’ Employment that are Recalls

Wages

Aggregate Wages

0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08

Ave

rage

U.S

. Wag

e R

elat

ive

to F

ebru

ary

15th

No Adjustment Selection Adjusted26

Aggregate Wages

Wage Adjustment: Firms that Traditionally Change Wages in March-May

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Panel A: Probability of Wage Freeze Panel B: Probability of Wage Cut

Sample: Firms that changed most of their wages during 2019 in March, April and May.

27

Wage Adjustment: Firms that Traditionally Change Wages in March-May

Wage Adjustment: Firms that Traditionally Change Wages in March-May

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Panel A: Probability of Wage Freeze Panel B: Probability of Wage Cut

Sample: Firms that changed most of their wages during 2019 in March, April and May.Both wage cuts and wage freezes are more common in 2020 28

Wage Adjustment: Firms that Traditionally Change Wages in March-May

Wage Adjustment: Firms that Traditionally Change Wages in March-May�

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Panel A: Probability of Wage Freeze Panel B: Probability of Wage Cut

2020: 46% with freeze, 11.4% with cut2008-10: 40% with freeze, 6% with cut 29

Wage Adjustment: Firms that Traditionally Change Wages in March-May

Wage Adjustment: Firms that Traditionally Change Wages in March-May

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Panel A: Probability of Wage Freeze Panel B: Probability of Wage Cut

Bottom Quintile Workers: 67% with freeze, 1.2% with cutTop Quintile Workers: 34% with freeze, 15.3% with cut

30

Wage Adjustment: Firms that Traditionally Change Wages in March-May

Cross State Re-Openings

Some Caveats on Cross-State Re-Opening Studies

Most sectors did not close in most states (essential services in many states includemanufacturing, construction, professional services (that can be done from home), finance,some retail, some medical, etc.

Re-openings often took place at di↵erent times within states.

The di↵erence across most states in the timing of re-opening is small (a few weeks)

State re-openings are often endogenous to changes in underlying health risks (which varyspatially).

Some caution needed in interpreting causal estimates of employment e↵ects of statere-openings.

32

Some Caveats on Cross-State Re-Opening Studies

State Re-Opening: Employment in Food/Accommodation

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Em

ploy

men

t Cha

nge

Rel

ativ

e to

Feb

ruar

y 1s

t

Large States Opening Late (IL, PA, VA, WA) Large States Open Early (FL, GA, TX) 33

State Re-Opening: Employment in Food/Accomodation

Summary

Unprecedented paid employment declines at start of Pandemic Recession

Concentrated among low wage workers, small firms, and women

Employment has increased meaningfully (by about 7 million workers) during May.

Selection e↵ects ! average wage increase

More base wage freezes and cuts than in Great Recession

Firm shutdown important, but some beginning to re-enter

Re-entering and growing business mostly recall previous employees

Not surprisingly, employment increases when states re-open sectors.34

Summary

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