The first jobs report after the COVID-19 lockdowns began in spring 2020 revealed an historic disaster. That April report indicated an astonishing 20 million jobs had been lost in one month. In that time, the unemployment rate had jumped 10 percentage points, to nearly 15 percent, and many believed it was headed much higher.

But within three years the labor markets had returned essentially to where they were prior to the pandemic. How is this possible?

This season on Six Hundred Atlantic, we’ll examine a host of labor market trends that arose during the pandemic era. We’ll look at some that have staying power, some that are fading, and some that were never real in the first place. But the broad focus will be on the labor market’s remarkably fast rebound from one of the biggest blows in its history.

JAY LINDSAY:

The first jobs report after the COVID-19 lockdowns hit the U.S. in spring 2020 revealed an epic disaster.

That April report indicated an astonishing 20 million jobs had been lost in one month. In that time, the unemployment rate had jumped 10 percentage points, to nearly 15%, and many believed it was headed much higher.

The tone of the analysis at the time was as grim as the data. One executive noted, "The unemployment numbers have reached a catastrophic level, resembling those of the Great Depression."

Lisa Kahn, a University of Rochester economist, remembers being floored by the magnitude of the hit.

LISA KAHN:

In terms of the impact on the labor market specifically, COVID was the biggest shock we've ever seen in written history, in the United States at least.

JAY LINDSAY:

Federal Reserve Bank of Boston labor economist Chris Foote described the pace and size of the job losses as "mind-blowing."

CHRIS FOOTE:

During the Great Recession of 2007 to 2009, we were having monthly job losses in the neighborhood of 750,000. And I thought I would never see job losses like that for the rest of my career. And then in April, we lose 20 million. So, I think there was a shock and awe factor early on that people were looking at these numbers and thinking, "My goodness, what is going to happen to our economy?"

JAY LINDSAY:

What happened was this: Within three years the labor market had returned essentially to where it was prior to the pandemic. In fact, just months after that April 2020 report, employers nationwide were dealing with job shortages in a tight labor market.

How is this possible?

My name is Jay Lindsay, and we're asking that question on this season of Six Hundred Atlantic, a podcast produced by the Federal Reserve Bank of Boston.

The title of this season – our fourth – is "From Collapse to Recovery: Labor Markets During and After the Pandemic." The title is derived from the name of the Boston Fed's 66^th Economic Conference, which the season is based on.

Like the conference, we'll examine a host of labor market trends that arose during the pandemic era. We'll look at some that have staying power, some that are fading, and some that were never real in the first place. We'll talk to economists trying to make sense of it all, and the new entrepreneurs, remote workers, and COVID-era retirees who lived through it.

But the broad focus of our four episodes will be on the labor market's remarkably fast rebound from one of the biggest blows in its history. Boston Fed economist Dhiren Patki notes there's a stark contrast between the aftermath of the pandemic and the fallout from this century's other massive labor market crisis – the Great Recession of 2007 and 2008.

DHIREN PATKI:

If you go back to the Great Recession, for instance, the impacts of it appear to be much longer lasting, and the scar of the Great Recession went on for a while. And for some people, it's a potentially lifelong scar. And, notwithstanding the public health consequences of COVID, when one looks at the economy, it doesn't appear to have really damaged it.

JAY LINDSAY:

Kahn says, in fact, the economy looks much like it would be expected to look if the pandemic never happened.

LISA KAHN:

The economy is producing the same mix of goods and services that it was pre-COVID with, of course, some notable differences, but no more than we would expect to see in a typical three-year time's period, say. So, that's why I think it's just so surprising to me.

JAY LINDSAY:

There are different theories about why the fast recovery was possible. Former Treasury Secretary Larry Summers told attendees at the Boston Fed conference that the nature of the COVID-19 hit was misunderstood from the start. It was not the economy-shattering blow many economists saw.

Summers said that, instead, it forced the economy into a sort of "hibernation" from which it could emerge relatively painlessly – like Cape Cod's summer tourism economy after a long winter.

LARRY SUMMERS:

What I think the crucial point to emphasize is that the right way to have understood the macroeconomic phenomenon of COVID was as having something to do with Cape Cod in winter, or weekends, or protracted snow days, and not in terms of a classic recession shortfall of aggregate demand paradigm that was widely adopted by policymakers.

JAY LINDSAY:

Foote sees merit in the analogy of an "economy in hibernation." But he said where it falls short is that pandemic-era labor markets weren't dormant at all.

CHRIS FOOTE:

I think that's what the snow day explanation of the pandemic might miss, is that in responding to the pandemic, certainly responding to the acute phase of the pandemic when a lot of firms just had to shut down and people had to work from home, that information is now part of our economic DNA, right? That information, we take with us.

JAY LINDSAY:

Foote added that even as labor markets have returned to what resembles a pre-pandemic status quo, a lot of what happened – and is happening – has yet to be uncovered. That, he said, is what events like the conference are for.

CHRIS FOOTE:

I think much of the research that was presented at the conference was saying, "Here are areas where we're going to be looking at. Here are things to keep in mind as we evaluate the economic data that comes online in the next several years."

JAY LINDSAY:

All the quotes you'll hear this season were either recorded at the conference or during interviews in the following months. And all the stats, unless indicated otherwise, were presented by speakers at the conference or in papers submitted for it.

Perhaps the most important pandemic era-trend explored at the conference – and a topic we'll devote an episode to this season – is the rise of remote work. Before the pandemic, about 5% of full paid workdays were performed at home. Post-pandemic, the figure seems to have settled in at about 30%. It's a huge increase. And University of Southern California professor Matthew Kahn says it's already transformed the American workforce.

Kahn also believes it will prove extremely beneficial to workers. They will have more free time and fewer stifling commutes. They'll be freer to live where they want, and less tethered to their employer's location.

MATTHEW KAHN:

As horrible as the Covid 2020 shock was, I believe it's going to have a long-term silver lining for millions of American workers.

JAY LINDSAY:

But a massive shift of workers to remote locations requires a shift away from where those employees were commuting – often city centers. And researchers say this could also have major implications. Lower foot traffic will support fewer businesses. Less demand for commercial space means falling rents. Both developments erode a city's tax base.

University of Chicago professor Steven Davis says that creates potential for a "downward spiral" – if cities start cutting back on basic services like policing or maintenance.

STEVEN DAVIS:

The city becomes a less desirable place both to live and work. And so, you can see how there is a potential for a downward spiral in cities that do not adjust appropriately and expeditiously to the changes in their economic circumstances.

JAY LINDSAY:

Not all researchers are as convinced as Kahn and Davis that companies will continue to permit the current levels of remote work. They say the advantages to workers and businesses won't be big enough.

But fundraising professional Jaime Schilling, who works from San Francisco for a company in Arkansas, says remote work has become a benefit workers will seek elsewhere, if their own employers start pulling back on it.

JAIME SCHILLING:

I see and hear about more employers requiring people to be back in the office, but I think that they're still outnumbered, and I think they're still in the minority. I think that most employers get that we are in a different world now. And I think there's a competitive advantage there, too, for employers that are like, "Yeah, we offer flexibility."

JAY LINDSAY:

Another way that the post-COVID world is different involves new business formations. They have surged since the onset of the COVID pandemic. The burst of business formations is another pandemic-era trend that may have similar endurance to remote work, and we'll investigate the recent entrepreneurial boom in an episode this season.

University of Maryland economist John Haltiwanger says this surge in new business formation is the opposite of what happened during the last recession.

JOHN HALTIWANGER:

In the Great Recession, we saw business formation collapse. In many ways, we never really recovered from the Great Recession in terms of startup activity, and particularly for new employer businesses.

JAY LINDSAY:

This time, Haltiwanger sees a wave of what he calls "necessity entrepreneurs." Chef Sherri Mitchell is one of them. Her plans to slowly roll out a line of gourmet sauces after graduating from culinary school accelerated when COVID shut down her school and everything else.

SHERRI MITCHELL:

It actually never occurred to me not to do it because at that point there really were no other options. Everything was shutting down. Everything was closing, and we had to figure out how to keep going.

JAY LINDSAY:

Haltiwanger notes this entrepreneurial surge was also driven by people who simply saw market opportunities in the conditions COVID created. Many in this latter group were by necessity shifting out of other industries – creating conditions for change that we'll also focus on. Specifically, sectors that lose workers in a tight labor market come under pressure to turn to technology – to automation – to try to eliminate or streamline tasks and lower labor demand. Will automation play a significant role in a post-pandemic labor market?

Conference keynote speaker Daron Acemoglu from MIT says yes. But he says the question is whether it will be "good automation" – the kind that augments work and boosts opportunity – or what he calls "so-so automation" that doesn't add much value and hurts workers.

DARON ACEMOGLU:

The so-so automation, or the excessive automation, is the bad face of automation. And if that bad face of automation is what we see, I think it's really bad for productivity, not that great for productivity, anyway. It's bad for distribution, it's bad for labor. It might be good for a handful of big tech companies. But I don't think that's the macroeconomic criteria that we should bank on.

JAY LINDSAY:

To researchers studying the pandemic's effect on labor markets, trends like remote work and an entrepreneurial boom have the benefit of actually existing. But the next episode of Six Hundred Atlantic will cover some highly hyped pandemic-era trends that simply weren't real. Here are a few examples:

There was no Great Resignation, in which workers everywhere abandoned the rat race to lead simpler lives. There was no mass and permanent exit of women from the workforce. There are few, if any, "missing jobs."

These narratives took hold and seemed to have credibility during a time of societal uncertainty. Researchers say the fact that such transformative changes didn't end up being true at least partly reflects the fact that – unlike in past recessions – this jobs calamity hit an economy that was basically sound. That meant it could more easily return to its prior form. Here's Chris Foote:

CHRIS FOOTE:

So, if you go back to the Great Recession of 2007 to 2009, we all remember that there was a large housing bubble before that recession occurred. And a bunch of imbalances built up among financial firms, a bunch in the financial system. Before the pandemic, you didn't see those imbalances built up, certainly to the same extent as you did before previous recessions. So, when the acute phase of the pandemic was over, you didn't need to sort of see adjustments. It was much more of sort of a return to the status quo, which was not an unbalanced status quo."

JAY LINDSAY:

That's next time, on Six Hundred Atlantic.

Thank you for listening to Season 4 of Six Hundred Atlantic. You can find interviews and our first four seasons and subscribe to our mailing list at bostonfed.org/six-hundred-atlantic. And we'd really appreciate if you would rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app.

The producers would like to thank our contributors for their time and insights. They are Steven Davis, Chris Foote, John Haltiwanger, Lisa Kahn, Matthew Kahn, Sherri Mitchell, Dhiren Patki, and Jaime Schilling.

This has been "From Collapse to Recovery," the fourth season of the Boston Fed's Six Hundred Atlantic podcast.