Special thanks to Raija Vaisanen, Massachusetts Workforce Association, and Andre Green, SkillWorks.

For the past year and nine months, we’ve been tracking economic trends through the COVID Community Data Lab. After a sharp drop into recession in the spring of 2020, Massachusetts has seen a quick recovery. The state unemployment rate has fallen from a record 16 percent in April 2020 to 3.9 percent in December 2021, and we have regained more than 530,000 jobs. Initial unemployment claims are now finally back to where they were before the pandemic began.

However, in many ways, there is still a long way to go. One reason why the unemployment rate has declined is that, as of December 2021, 56,900 workers have left the labor market altogether, meaning they no longer count toward the official unemployment rate. People have left the workforce due to factors like ongoing public health concerns, the need to care for children out of school, a declining willingness to return to low-quality service jobs, and early retirements. Additionally, despite aggregate declines, unemployment rates remain higher for Black and Latinx residents. This analysis presents a quick summary of where we are coming out of 2021 and then offers a discussion of some likely causes of our ongoing economic challenges.

Summary of the Massachusetts labor market coming out of 2021

In December 2021, the Massachusetts unemployment rate was 3.9 percent, roughly one-fourth of the peak unemployment rate in April 2020 (16 percent) but still above the pre-pandemic baseline. After exceeding the national rate for most of the pandemic, the state and national rates are now roughly equal.

Like before the pandemic, unemployment rates are higher for workers of color than they are for White workers. The Bureau of Labor Statistics (BLS) only releases state-level rates disaggregated by race annually. These estimates give us an idea of who is unemployed by race, but it should be interpreted with caution due to the small sample size at the state level. Latinx unemployment has fallen significantly from an estimated peak of more than 27 percent in Quarter 2 of 2020 to 8 percent in Quarter 4 of 2021. But it remains twice as high as the White unemployment rate (4 percent in Quarter 4 2021). Nationally, disparities by race are especially large when looking at teens, who often work in the retail and hospitality industries. In November 2021, 21.9 percent of Black teens (ages 16 to 19) were unemployed compared to just 9.3 percent of White teens.

While the number of filled jobs in Massachusetts has begun to recover, it remains well below pre-pandemic levels. In December 2021, there were approximately 155,000 fewer jobs than before the pandemic in February 2020.

It’s also worth noting that job loss has not been evenly distributed by sector. The number of workers employed in leisure and hospitality is still down nearly 17 percent, or approximately 63,100 workers. The number of workers in education and health services has also decreased significantly, by 50,500 workers, or 6.1 percent. Meanwhile, jobs that could more easily adapt to the demands of a pandemic actually saw their labor force grow—the professional and business services sector, for instance, gained 10,900 jobs in the same period. But now hospitals, restaurants and other businesses are struggling to find workers—so what happened?

How can we have both a labor shortage and high unemployment?

With economists hotly debating the causes of today’s counterintuitive economic situation, it’s hard to pinpoint definitive explanations. But there are several leading theories of factors that all may play some role. They include the following:

Some people who left the workforce earlier in the pandemic still have not returned.

Today’s discussions about unemployment can miss a large and important group—those who have exited the labor force during the pandemic. The traditional unemployment rate only accounts for those who are currently not working and are actively (within the last four weeks) looking for work. It doesn’t include those who have stopped looking for work entirely. One way that we can look at this is by looking at labor force participation rates (LFPR),  the share of the civilian, noninstitutional population 16 years or older that is working or actively looking for work. Massachusetts has consistently had a LFPR above the national rate, even throughout the pandemic, but in December 2021 the labor force participation remained 1.2 percentage points below pre-pandemic levels in January 2020. Notably, the national LFPR is still far below pre-pandemic levels and is at its lowest level in 45 years.

Many of the workers missing from the labor force are interested in working but have become discouraged by the labor market. We can look at our missing workers by analyzing “alternative measures of unemployment” released by the Bureau of Labor Statistics and based on CPS data. While the official unemployment rate looks only at workers who are out of work and have looked for work in the past four weeks, alternative measures incorporate “discouraged” workers who are currently not in the labor force but want work, are available for work, and have looked for a job in the past 12 months. They are “discouraged” because they have not looked for a job in the past four weeks for the specific reason that they thought there would be no job opportunities for them. BLS’ alternative measures also includes workers who are “marginally attached” to the labor force, who are essentially the same as discouraged workers except they could have cited any reason for not looking for work. The marginally attached account for many of the workers missing from the labor force, and are interested in returning to work but have become discouraged by the options available to them.

The unemployment rate for Massachusetts is significantly higher when you include discouraged workers and those who are underemployed, as shown in the graph below. BLS’ alternative measures also include “employed part time for economic reason” workers who are employed part time not by choice but because their hours have been cut or they cannot find a full-time job. They are often referred to as “involuntary part-time workers.” When you fold all the marginally attached workers and involuntary part-time workers into the unemployment rate, the 2021 unemployment rate jumps to 9.5 percent in the state.

We’re still in the midst of a global pandemic that’s killing an average of more than 2,000 Americans every week.

After almost two years of this global pandemic, it’s easy to lose sight of what a shock it has been to all aspects of our lives. The economy was shut down in a matter of weeks and then unprecedented fiscal stimulus and recovery funding helped bring it back to life. But these two things did not neatly offset each other. And, most importantly, the virus itself continues to spread. As the public health crisis continues, individuals may fear returning to the workplace and placing themselves, and their loved ones, at risk of infection, particularly in low-wage sectors where social distancing is often not possible. Instead, many workers are opting for remote work, and other older workers are choosing to retire early, rather than assume these risks.

This is in addition to the direct effects of COVID-19 in Massachusetts: Between January 2 and January 15, 2022, there were 166,660 cases among working age adults (20–59 years) alone and over 21,000 cumulative deaths since the start of the pandemic.* The impact of illness and COVID-19–related deaths cannot be overstated. National and international responses have failed to contain infection, and a primary strategy for bringing the economy back to normal must be implementation of public health measures to control the spread of COVID-19 and minimize the dangers of infection with the virus.

Buffeted in part by federal stimulus and expanded unemployment support, some workers have quit low-quality jobs and are seeking better ones before returning to work.

Workers, particularly in lower-wage industries with limited benefits and challenging conditions, may be seeking better jobs. The expansion of federal benefits has helped many workers accumulate enough savings that they dare to quit a difficult job and take the necessary time to find a better one. As one EPI senior policy analyst said, workers “finally have leverage to demand higher pay.” Rather than returning to a job where they have little control of their schedule or must work long shifts with no overtime pay, new savings have allowed workers to resign and find something better. For some, that has meant finding a better job in the same industry. For others that has meant starting their own business: According to the Economic Innovation Group, business formation was at an all-time high in 2021, with over 1.4 million applications to start a new business filed between January and September.

Quit and hire rates are up nationally and are particularly high in low-wage sectors. In Massachusetts, the quit rate, the number of workers who quit their job as a share of total employment, has risen in the past six months but remains below the national rate. Nationally, a record 4.5 million workers left their jobs in November 2021, or 3 percent of the workforce. Quit rates are especially high in the low-wage sectors of accommodation and food services, where jobs often have poor working conditions, stagnant wages, unreliable/unpredictable schedules, low job security, and few or no benefits. Many of these jobs were made more risky during the pandemic, as in-person settings increased the odds of infection, and more difficult, as workers were often responsible for enforcing public health mandates such as mask-wearing. However, hires still exceed quits in all industries, demonstrating that many workers aren’t just leaving the workforce, they’re likely quitting to then take a better-paying job.

In addition to switching to better jobs, workers are also organizing to improve working conditions at their current workplaces. Not only has there been a spike in high-profile, organized labor strikes, such as the nurses at St. Vincent’s Hospital in Worcester, but informal worker walk-outs in non-unionized businesses have also increased.

We’re already starting to see some shift in job quality. Massachusetts wage and salary annualized rates increased by 13.8 percent in October 2021, compared to just 9.9 percent nationally. Inflation, however, may make a dent in these gains.

Childcare shortages make it difficult or impossible for parents, particularly women, to return to work.

A childcare shortage made worse by the pandemic has made it difficult for families to find care for young children. Even before Governor Baker ordered all childcare centers to close in March 2020, Massachusetts had some of the highest childcare costs in the nation. Many parents found it difficult to find childcare they could afford even as many childcare workers found it difficult to live on the low wages that the industry provides. A significant share of small childcare centers did not survive the shutdown, exacerbating the shortage of childcare seats. At the same time, childcare is not exempt from the economic dynamics described above and many providers report difficulty hiring staff as care workers seek higher paid opportunities, are hesitant to return to in-person work with greater COVID exposure, are sick or are responsible for care work at home themselves.

School closures and acute childcare shortages caused many parents, particularly women, to exit the workforce. The gap in labor force participation rates by gender in Massachusetts grew during the pandemic but returned to pre-pandemic levels in Quarter 4 2021.

Labor force participation rates for women also differ by race. Unfortunately, the data are not available at the state level, but in October and November 2021, labor force reentry for Black women essentially reversed nationally. While women of all other racial and ethnic groups saw their labor force participation rates slightly increase during that period, the LFPR for Black women actually declined, as approximately 181,000 Black women exited the labor force. This could be due to ongoing challenges securing childcare—Black and Latinx women were disproportionately exposed to childcare center closures—and a leaving behind of “high-risk, low-reward” jobs. Black women are overrepresented in industries, including leisure and hospitality, and occupations, such as cashiers and health-care support, that have been heavily affected by the pandemic. Not only did these jobs place Black women at higher risk of exposure to COVID-19, but they also underpaid them.

For working parents, it is difficult to return to work—either in person or remotely—without adequate and safe childcare. The same public health concerns apply to children too, and many parents may be hesitant to send their children back to a classroom environment and prefer to care for them at home, especially if someone in their household is at higher risk for severe COVID-19.

The workforce, in general, is shrinking.

The increase in deaths, decrease in immigration, and slowing birth rates are larger forces shaping the American workforce. By January 22, 2022, over 221,000 working age (18 to 64 years) adults have died from COVID-19 in the United States—a significant amount that must be taken into account. At the same time, the birth rate in the United States has been on a downward trend for some time and reached a new low in 2019. As the Baby Boomer generation ages into retirement, the number of workers may keep shrinking, particularly if immigration continues to decline.

* - DPH age brackets used in reporting. Unfortunately, MA DPH does not report cumulative deaths by age. Data as of January 28, 2022. Source: MA DPH COVID-19 Dashboard.