Macro Roundup

Chetty’s team finds that America's workforce earning <$29k/year is down about 20% relative to its January 2020 level. Adjusting for workers now earning over $29k, the low-wage workforce was 13.5% under its pre-pandemic level. “…The US is missing about a fifth of its pre-pandemic low-income workforce. At least some of those workers moved to higher-paying jobs, but, after adjusting for wage growth, researchers found employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021.Analyzing local trends, researchers found an important clue to where those missing workers went: Low-wage workers are scarcest where 2020’s devastation was worst. “It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple of years ago” Chetty said…”

Ben Steverman, "Job Market’s 2.6 Million Missing People Unnerves Star Harvard Economist,"Bloomberg, January 18, 2023, https://www.bloomberg.com/news/articles/2023-01-18/job-market-update-2-6-million-missing-people-in-us-labor-force-shakes-economist

Job Market’s 2.6 Million Missing People Unnerves Star Harvard Economist

Behind the five-decade low US unemployment rate of 3.5% lies a 2.6 million-person mystery.

That’s roughly how many more Americans should be working or looking for jobs if the economy’s labor force participation rate was the same as before the Covid-19 pandemic. But something’s still off, leaving everyone from mom-and-pop businesses to Federal Reserve economists scrambling to answer a crucial question: Where are these workers?

Economist Raj Chetty and his big-data experts at Harvard University’s Opportunity Insights lab went looking for these missing people. Their research relies on an innovative method of tracking the economy, built in the early months of the pandemic, that blends anonymized transaction data from private companies.

The data highlight to Chetty and his team just how much those awful months in 2020 still haunt the US economy. Even as their tracker shows metrics like job listings, consumer spending and small business revenue surging back above January 2020 levels, the US is missing about a fifth of its pre-pandemic low-income workforce. At least some of those workers moved to higher-paying jobs, but, after adjusting for wage growth, researchers found employment for the poorest quarter of the workforce was still 13.5% below pre-pandemic levels at the end of 2021.

As it turns out, the hardest-hit businesses were in the richest neighborhoods. In areas like Boston’s Back Bay, New York’s Upper West Side and Brentwood in Los Angeles, the pandemic and its aftermath have thrown into chaos the lives of millions of employees who once waited on the wealthy in restaurants, bars, gyms and hair salons.

“It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple years ago,” Chetty said.

The pandemic sent shockwaves throughout the US labor market and created a divide between the professional class — where many roles could be done remotely — and those in lower-income jobs like retail and hospitality, which require in-person interaction. That makes certain areas, like those with dense office space and businesses that cater to workers who may never fully return, a sharp focus for researchers seeking to understand the lasting economic consequences of the Covid era.

Missing Recovery

While almost every other gauge of the economy had fully recovered by the end of 2021, Chetty’s tracker shows low-wage employment levels have been stagnant for more than a year.

When low-wage employment is plotted on a graph by county, the highest-rent areas are missing the most workers — the places where bars, restaurants and health clubs were most empty in 2020. Chetty, along with professors John Friedman of Brown University, Nathaniel Hendren of Harvard and Michael Stepner of the University of Toronto, write the “strongest predictor” of the drop in employment is “the size of the initial shock.”

Even before Covid, low-income workers were getting older — the US population’s median age has steadily risen since the 1970s — and struggling with employment barriers like a lack of affordable child care and housing. Then the pandemic made almost everything worse, including strains on families, effects on health, the hassles of commuting and the stress of the jobs themselves.

Of course, Covid-induced strains or job losses didn’t set off a downward spiral for every low-income worker. Many managed to reinvent themselves, switching industries, negotiating raises or moving to areas with better opportunities. And wage growth broadly has been higher for those in the lower income brackets.

Pressure Building

Still, even many of those who managed to replace their lost jobs have never been the same.

Rafael, an undocumented immigrant from Nicaragua who asked not to use his last name, was working in a kitchen whipping up Mediterranean food in 2020 when the orders stopped coming in. The Maryland restaurant shut permanently.

While Rafael liked the conditions at his last restaurant, he decided that, at age 57, he can’t risk returning to the kitchen.

In restaurants, “there’s a lot of pressure and they really expect a lot of energy and labor,” he said. “But with my age, I’m losing energy bit by bit every day.”

Since then, he has been earning money cleaning houses and caring for an elderly man. But the odd and unpredictable gigs aren’t enough, especially with rent and almost everything else getting more expensive. “Unfortunately, I just don’t have the necessary hours I need,” he said, speaking in Spanish through an interpreter.

Those trying to make it work in megacities say their former employees are following the higher-paid, work-from-home cohort to areas of the country that are more affordable.

‘Easier, Rewarding’

“People who had a year and a half to figure out what to do with their lives figured out they wanted easier jobs, or jobs that were more rewarding,” said Philippe Massoud, who has struggled with staff shortages at his Lebanese restaurants, named Ilili, in New York and Washington. “They moved to places they didn’t have to commute one hour each way to get to work,” like North Carolina, he said.

A shortage of affordable housing near good jobs is a national problem. Real estate costs in Portland, Maine, jumped when city-dwelling professionals descended on the charming New England city to buy second homes during Covid.

For lower-paid employees, “it’s getting tougher and tougher to live closer to downtown as time goes on,” said Andrew Volk, co-owner of cocktail bar Portland Hunt and Alpine Club.

Paying workers more is a partial solution — one that Volk and Massoud have tried, even though it required raising prices.

“It’s just a question of making sure your wages are attractive and you offer a good benefit package,” said Aaron Seyedian, owner of a cleaning service, called Well-Paid Maids, that prides itself on paying $22 per hour in Washington and $27 in New York.

He finds himself soaking up employees from other industries, including former managers at retail stores or restaurants who are relatively well-paid but fed up with those jobs.

Inflation Impact

But the extra money only goes so far when inflation has hit many lower-income families the hardest. And even a substantial raise won’t solve situations where life is making it impossible to get back to work.

Kayla Cooper, a 34-year-old mother of three young children, lost her job in 2020, then worked for two years as a contact tracer from home. But the trained social worker now can’t find anything that provides the same flexibility or sufficient pay and benefits to compensate for crushing child care bills.

“If I’ll be making $24 an hour but daycare is $25 an hour, why am I going back to work?” she said. “I feel pushed out of the workforce.”

One difference is “the US has never had a comprehensive labor supply policy” to bring more workers onto the job, said labor economist Kathryn Edwards. Child care subsidies, paid sick and family leave, and the right to part-time work would lower the job barriers for parents and other caregivers, older workers and people with disabilities.

Divided control of Washington makes any major changes unlikely for the next couple years. In the meantime, local governments and businesses may need to get creative in strategies for bringing workers back, particularly to the places where they’re most scarce.

Despite unemployment and other economic measures looking pretty good, “policymakers need to not be lulled into a sense of complacency,” said Friedman, the study’s co-author and a co-director of Opportunity Insights. Long-term unemployment can cause “a lot of damage to careers and the economy long term.”

Breat Swanson notes there have been at least 400,000 unexpected deaths among the US working-age population since 2020. Netting out Covid deaths and unnatural deaths (homicide, suicide, overdose, etc.) he finds a spike starting in 2021.

“…In 2021 group life [insurance] payments exploded by 20.7% over the five-year average and by 15% over the acute pandemic year of 2020. If we remove both Covid-19 and unnatural deaths (homicide, suicide, overdose, etc.), we see a dramatic spike of natural, non-Covid-19 deaths among working-age people beginning in the spring and summer of 2021. To overgeneralize: In 2020, the vulnerable died of Covid at unusually high rates. In 2021 and 2022, Covid continued its assault, but the young, middle-aged, and healthy also died in aberrantly high numbers of something else….”

Bret Swanson, “Where Did All the Workers Go?,” Infonomena, January 19, 2023, https://infonomena.substack.com/p/whered-all-the-workers-go

Where Did All the Workers Go?

In a November 30, 2022, speech on “Inflation and the Labor Market,” Federal Reserve chairman Jerome Powell blamed most of the 3.5 million estimated shortfall in the U.S. labor force on premature retirements. He also blamed a large portion – between 280,000 and 680,000 – on “long Covid.” In a footnote, however, Powell acknowledged a far more somber factor: an estimated 400,000 unexpected deaths among working age people.

It’s easy to blame these deaths on Covid-19. The virus is of course one significant cause. But it’s not nearly the only cause, especially among young and middle-age workers. We need better government data transparency to make a full assessment. Until then, we can proceed with others who track mortality for a living – life insurance companies.

The Great Divide – 2020 vs. 2021

In 2020, Covid-19 took many lives, even among select groups of middle-age people, specifically those with comorbidities such as diabetes. In 2020, Covid did not take very many lives of healthy young and middle-age people – for example, the types of people who are employed at large and mid-size companies and who have group life insurance. As you can see in the chart below, group life insurance benefit payments in 2020 were barely higher than in 2018.

In 2021, however, group life payments exploded by 20.7% over the five year average and by 15% over the acute pandemic year of 2020. Why would healthy young and middle-age people suddenly begin dying in large numbers in 2021 when they’d navigated 2020 with relative success?

Especially when we consider that in 2021, the U.S. administered 520 million Covid-19 vaccine doses. Shouldn’t healthy people employed in good jobs with good benefits, now protected with vaccines, have fared better in 2021 than in 2020? Surely, overdoses and suicides have risen in recent years. But those causes of death are less prominent among the group life cohorts in general, and the latest data confirm these were not drivers of the group life surge. Curiously, two of the largest spikes in 2021 came from deadly automobile accidents and non-automobile accidents.

Millennial Mortality

Let’s look at a few of these young adult age groups in more detail. In the charts below, we’ve broken out total all-cause deaths into three groups – 30-34, 35-39, and 40-44. Eyeballing the age group charts alone shows that factors other than Covid-19 itself must have driven large portions of the mortality spike in young and middle-age workers. (We are using official statistics, which likely overstate Covid mortality and understate non-Covid mortality. It’s the best we’ve got for now.)

The most important overall point is that 2021 was far worse for young and middle-age people than 2020.

Another key point is that 2022 was also worse than 2020, though not as bad as 2021.

Mortality rates in 2022 were still dramatically higher than the pre-pandemic baseline.

Covid-19 hit hard in 2020, especially for the old, vulnerable, and comorbid. In other words, Covid-19 took many of the most unhealthy from us in 2020. In principle, therefore, a smaller number unhealthy people might have been susceptible to Covid-19 in 2021 and 2022. High mortality years are often followed by low mortality years. After two successive high mortality years, the third year is even more likely to be low-mortality. For 2022 to be as bad, or somewhat worse, than 2020, is thus a big surprise. Last year’s milder Omicron variants make 2022’s stubbornly high mortality rate even more baffling.

All-cause mortality is crucial to understand whether public health policies are working. All-cause numbers can also help expose faulty reasoning when overly narrow, overly complicated, or overly clever analyses miss or hide important signals. For example, an analysis which purported to show lockdowns reduced Covid deaths but which neglected to show other deaths rose even more, would not reflect the totality of the policy’s effects. Likewise, a chemotherapy which shrinks tumors but kills patients may be successful in its narrow task yet fail the larger mission. Most analysts and health authorities studiously ignored all-cause over the last three years. The all-cause figures above show our Covid policies were far from successful.

For other purposes, however, it’s helpful and even necessary to drill down on specific causes. Important signals can also be lost in large groupings – Simpson’s paradox, for example, is a common statistical illusion. (Few have dug deeper, with as much specificity, as John Beaudoin, an engineer from Massachusetts who gained access to his state’s digital death records for the last eight years. He shows that specific causes of death spike and fall at important moments and periods. CDC data is not organized with such granularity. More on Beaudoin’s analysis in coming weeks…)

We know that recent years saw an upswing in drug overdoses and suicides, which accelerated with the pandemic lockdowns. Although these troubling trends cannot explain the enormous and unprecedented all-cause mortality seen above, we should attempt to account for them. Likewise, although Covid-19 did not cause all these record deaths, it was a significant factor.

Employment Aberration

So we dig deeper. If we remove both Covid-19 and unnatural deaths (homicide, suicide, overdose, etc.), we see a dramatic spike of natural, non-Covid-19 deaths among working age people beginning in the spring and summer of 2021. The CDC then stopped publishing the detailed data breaking out these particular categories.

But we know this trend continued. In fact, it got much worse. The life insurance companies told us so. On a December 30, 2021, videoconference with the Indiana Chamber of Commerce, OneAmerica CEO Scott Davison reported with shock:

“And what we saw just in third quarter, we’re seeing it continue into fourth quarter, is that death rates are up 40% over what they were pre-pandemic.”

“40% is just unheard of.”

“It may not all be COVID on their death certificate, but deaths are up just huge, huge numbers.”

Several months later, Lincoln National reported its 2021 payouts were $1.4 billion, versus $548 million in 2020, a 164% rise.

As you will remember seeing in our three all-cause charts, August, September, and October of 2021 showed a gigantic upward bubble – the worst ever period of concentrated young and middle-age deaths, at least in modern times.

Heart attacks, strokes, pulmonary embolisms, accidents, and many seemingly-inexplicable sudden deaths, which continued into 2022, and now in 2023. Here is the Society of Actuaries November 2022 update, which goes through June 2022.

It’s true that the late summer and fall period of 2021 coincided with the Delta wave in the U.S., which was more infectious and appeared to be more pathogenic than previous variants. (We’ve suggested the mass vaccination programs may have, by exerting extreme evolutionary pressure, driven convergence onto more infectious, vaccine-evading variants. Brand new research just published in the New England Journal of Medicine continues to bolster our escape variant thesis: Substantial Neutralization Escape by SARS-CoV-2 Omicron Variants BQ.1.1 and XBB.1.)

Federal officials and the medical establishment, you will recall, argued in 2021 that it was a “pandemic of the unvaccinated.” Even the Society of Actuaries attempts to explain away its alarming findings by implying the deaths are due to lack of vaccination. It does so with crude regressions of excess mortality and bulk state-wide vaccination totals as of June 30, 2021.

But remember those 520 million vaccine doses. How can you generate far more deaths in 2021 – ascribing them to unvaccination – with a dramatically smaller number of unvaccinated people? In 2021, perhaps 20-40% of these group life insureds were unvaccinated. In 2020, 100% of them were unvaccinated, yet mortality barely rose. The math doesn’t come close to working.

The 40-44 age group, for example, suffered 21.5% more total deaths in 2021 than 2020. This terrible outcome occurred with less than half the so-called susceptible population due to their unvaccinated status. It’s difficult to assert robust vaccine effectiveness when both doses-delivered and deaths are skyrocketing.

On the other hand, the group life insurance data show vaccinated groups may have suffered the worse outcomes. By August, most large and mid-size companies and organizations across the country had vaccine mandates, and most employees complied. Yet these workers suffered extraordinary – indeed, totally unprecedented death rates – in 2021, especially the second half of 2021.

Ed Dowd, a former BlackRock portfolio manager, points to a crucial peculiarity in his book Cause Unknown. Employed people with group life insurance policies are far healthier than their overall population cohort. They typically die at a significantly lower rate, just 30-40% of the overall population. This is an iron actuarial law. In 2021, however, as you can see in the chart directly above, these employed Americans died at excess rates far higher than their larger pool of less healthy peers.

We could also point to fast-rising disability as a key factor in the worker shortage. Fed chair Powell blames it on long Covid. Once again, however, the timing doesn’t fit that story very well.

To overgeneralize:

In 2020, the vulnerable died of Covid at unusually high rates. In 2021 and 2022, Covid continued its assault, but the young, middle-aged, and healthy also died in aberrantly high numbers of something else.

These patterns are repeating across the high-income developed world – Germany, the UK, Japan, South Korea, Australia. We’ll examine these stories and survey the great work of other analysts in upcoming articles.

Breat Swanson notes there have been at least 400,000 unexpected deaths among the US working-age population since 2020. Netting out Covid deaths and unnatural deaths (homicide, suicide, overdose, etc.) he finds a spike starting in 2021.

“…In 2021 group life payments exploded by 20.7% over the five-year average and by 15% over the acute pandemic year of 2020. If we remove both Covid-19 and unnatural deaths (homicide, suicide, overdose, etc.), we see a dramatic spike of natural, non-Covid-19 deaths among working-age people beginning in the spring and summer of 2021. To overgeneralize: In 2020, the vulnerable died of Covid at unusually high rates. In 2021 and 2022, Covid continued its assault, but the young, middle-aged, and healthy also died in aberrantly high numbers of something else….”

Bret Swanson, "Where Did All the Workers Go?,"Infonomena, January 19, 2023, https://infonomena.substack.com/p/whered-all-the-workers-go

Where Did All the Workers Go?

In a November 30, 2022, speech on “Inflation and the Labor Market,” Federal Reserve chairman Jerome Powell blamed most of the 3.5 million estimated shortfall in the U.S. labor force on premature retirements. He also blamed a large portion - between 280,000 and 680,000 - on “long Covid.” In a footnote, however, Powell acknowledged a far more somber factor: an estimated 400,000 unexpected deaths among working age people.

It’s easy to blame these deaths on Covid-19. The virus is of course one significant cause. But it’s not nearly the only cause, especially among young and middle-age workers. We need better government data transparency to make a full assessment. Until then, we can proceed with others who track mortality for a living - life insurance companies.

The Great Divide - 2020 vs. 2021

In 2020, Covid-19 took many lives, even among select groups of middle-age people, specifically those with comorbidities such as diabetes. In 2020, Covid did not take very many lives of healthy young and middle-age people - for example, the types of people who are employed at large and mid-size companies and who have group life insurance. As you can see in the chart below, group life insurance benefit payments in 2020 were barely higher than in 2018.

Especially when we consider that in 2021, the U.S. administered 520 million Covid-19 vaccine doses. Shouldn’t healthy people employed in good jobs with good benefits, now protected with vaccines, have fared better in 2021 than in 2020? Surely, overdoses and suicides have risen in recent years. But those causes of death are less prominent among the group life cohorts in general, and the latest data confirm these were not drivers of the group life surge. Curiously, two of the largest spikes in 2021 came from deadly automobile accidents and non-automobile accidents.

Millennial Mortality

Let’s look at a few of these young adult age groups in more detail. In the charts below, we’ve broken out total all-cause deaths into three groups - 30-34, 35-39, and 40-44. Eyeballing the age group charts alone shows that factors other than Covid-19 itself must have driven large portions of the mortality spike in young and middle-age workers. (We are using official statistics, which likely overstate Covid mortality and understate non-Covid mortality. It’s the best we’ve got for now.)

The most important overall point is that 2021 was far worse for young and middle-age people than 2020.

Another key point is that 2022 was also worse than 2020, though not as bad as 2021.

Mortality rates in 2022 were still dramatically higher than the pre-pandemic baseline.

Covid-19 hit hard in 2020, especially for the old, vulnerable, and comorbid. In other words, Covid-19 took many of the most unhealthy from us in 2020. In principle, therefore, a smaller number unhealthy people might have been susceptible to Covid-19 in 2021 and 2022. High mortality years are often followed by low mortality years. After two successive high mortality years, the third year is even more likely to be low-mortality. For 2022 to be as bad, or somewhat worse, than 2020, is thus a big surprise. Last year’s milder Omicron variants make 2022’s stubbornly high mortality rate even more baffling.

All-cause mortality is crucial to understand whether public health policies are working. All-cause numbers can also help expose faulty reasoning when overly narrow, overly complicated, or overly clever analyses miss or hide important signals. For example, an analysis which purported to show lockdowns reduced Covid deaths but which neglected to show other deaths rose even more, would not reflect the totality of the policy’s effects. Likewise, a chemotherapy which shrinks tumors but kills patients may be successful in its narrow task yet fail the larger mission. Most analysts and health authorities studiously ignored all-cause over the last three years. The all-cause figures above show our Covid policies were far from successful.

For other purposes, however, it’s helpful and even necessary to drill down on specific causes. Important signals can also be lost in large groupings - Simpson’s paradox, for example, is a common statistical illusion. (Few have dug deeper, with as much specificity, as John Beaudoin, an engineer from Massachusetts who gained access to his state’s digital death records for the last eight years. He shows that specific causes of death spike and fall at important moments and periods. CDC data is not organized with such granularity. More on Beaudoin’s analysis in coming weeks…)

We know that recent years saw an upswing in drug overdoses and suicides, which accelerated with the pandemic lockdowns. Although these troubling trends cannot explain the enormous and unprecedented all-cause mortality seen above, we should attempt to account for them. Likewise, although Covid-19 did not cause all these record deaths, it was a significant factor.

Employment Aberration

So we dig deeper. If we remove both Covid-19 and unnatural deaths (homicide, suicide, overdose, etc.), we see a dramatic spike of natural, non-Covid-19 deaths among working age people beginning in the spring and summer of 2021. The CDC then stopped publishing the detailed data breaking out these particular categories.

“And what we saw just in third quarter, we’re seeing it continue into fourth quarter, is that death rates are up 40% over what they were pre-pandemic.”

“40% is just unheard of.”

“It may not all be COVID on their death certificate, but deaths are up just huge, huge numbers.”

Several months later, Lincoln National reported its 2021 payouts were $1.4 billion, versus $548 million in 2020, a 164% rise.

As you will remember seeing in our three all-cause charts, August, September, and October of 2021 showed a gigantic upward bubble - the worst ever period of concentrated young and middle-age deaths, at least in modern times.

Heart attacks, strokes, pulmonary embolisms, accidents, and many seemingly-inexplicable sudden deaths, which continued into 2022, and now in 2023. Here is the Society of Actuaries November 2022 update, which goes through June 2022.

Federal officials and the medical establishment, you will recall, argued in 2021 that it was a “pandemic of the unvaccinated.” Even the Society of Actuaries attempts to explain away its alarming findings by implying the deaths are due to lack of vaccination. It does so with crude regressions of excess mortality and bulk state-wide vaccination totals as of June 30, 2021.

But remember those 520 million vaccine doses. How can you generate far more deaths in 2021 - ascribing them to unvaccination - with a dramatically smaller number of unvaccinated people? In 2021, perhaps 20-40% of these group life insureds were unvaccinated. In 2020, 100% of them were unvaccinated, yet mortality barely rose. The math doesn’t come close to working.

The 40-44 age group, for example, suffered 21.5% more total deaths in 2021 than 2020. This terrible outcome occurred with less than half the so-called susceptible population due to their unvaccinated status. It’s difficult to assert robust vaccine effectiveness when both doses-delivered and deaths are skyrocketing.

On the other hand, the group life insurance data show vaccinated groups may have suffered the worse outcomes. By August, most large and mid-size companies and organizations across the country had vaccine mandates, and most employees complied. Yet these workers suffered extraordinary - indeed, totally unprecedented death rates - in 2021, especially the second half of 2021.

We could also point to fast-rising disability as a key factor in the worker shortage. Fed chair Powell blames it on long Covid. Once again, however, the timing doesn’t fit that story very well.

To overgeneralize:

In 2020, the vulnerable died of Covid at unusually high rates. In 2021 and 2022, Covid continued its assault, but the young, middle-aged, and healthy also died in aberrantly high numbers of something else.

These patterns are repeating across the high-income developed world - Germany, the UK, Japan, South Korea, Australia. We’ll examine these stories and survey the great work of other analysts in upcoming articles.