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Labour markets during the Covid-19 crisis: A preliminary view


Labour markets during the Covid-19 crisis: A preliminary view


The arrival of the Covid-19 virus in the US and the policy responses have led to unprecedented numbers of initial claims for unemployment since early 2020: over 16.5 million by 4 April 2020, with new claims arriving at a rate of 6-7 million per week. But concerns about state governments’ inability to process so many claims in such a short period, combined with the fact that many workers are ineligible for unemployment benefits, has led to concerns that total job losses are being understated by these numbers. Furthermore, because official labour market indicators compiled by the Bureau of Labor Statistics (BLS) take time to be released, the current state of the US labour market remains unclear. 

Baldwin and Weder di Mauro (2020) provide an excellent overview of the recent literature on the economic consequences of the coronavirus pandemic.  Using new ongoing large-scale surveys of US households much like the ones run by the BLS, in a new paper (Coibion et al. 2020b) we provide some preliminary evidence on the response of labour markets in the US to the current crisis. We focus on three key variables typically measured by the BLS: the employment-to-population ratio, the unemployment rate, and the labour force participation rate. Historically, the employment-to-population ratio and the unemployment rate are near reverse images of one another during recessions as workers move out of employment and into unemployment (or workers in unemployment find it harder to move into employment). More severe recessions also sometimes lead to a phenomenon of ‘discouraged workers’, in which some unemployed workers stop looking for work. This leads them to be reclassified as ‘out of the labour force’ by the BLS definitions, so the unemployment rate can decline along with the labour force participation rate while the employment-to-population ratio shows little recovery, not because the unemployed are finding work but rather because they stop trying to find one. Jointly, these three metrics therefore provide a succinct and informative summary of the state of labour markets.

We follow previous research (Coibion et al. 2019, 2020a, D’Acunto et al. 2020a, 2020b) and run surveys on the Nielsen panel prior to and at the height of the Covid-19 crisis and provide new estimates of how these variables have changed in the last two months. Our most recent numbers are from individuals surveyed from 2 to 6 April 2020, and therefore provide a sneak preview at what the equivalent BLS numbers will likely show when they are ultimately released. 


Our main results are as follows. First, the employment-to-population ratio has declined sharply. Using the adjusted metrics described above, we find that the employment ratio fell from 60% of the population down to 52.2%, a nearly eight percentage point decline. As illustrated in Panel B of Figure 1, this decline in employment is enormous by historical standards and is larger than the entire decline in the employment-to-population ratio experienced during the Great Recession. Given that the US civilian non-institutional population is approximately 260 million, this drop in the employment-to-population ratio is equivalent to 20 million people losing their jobs. This drop is even larger than the 16.5 million new unemployment claims over this time period.

Figure 1 Time series of key employment statistics

Labour markets during the Covid-19 crisis: A preliminary view 2

Notes: Each panel plots monthly time series of an employment statistics. The black, solid line shows data from the Bureau of Labor Statistics (BLS). The red, solid line with circles shows the corresponding values from the Nielsen survey. 2020M2 are the values from the Nielsen pre-crisis survey. 2020M3 are the values from the Nielsen crisis wave.   

Second, we find a much smaller increase in the unemployment rate. The adjusted unemployment rate rose from 4.2% to 6.3%. Panel A of Figure 1 plots this rise relative to previous changes in unemployment over the last 15 years. While this increase is the single biggest discrete jump in unemployment over the time period, this change in unemployment corresponds only to about one-third of the increase observed during the Great Recession. For comparison with the employment-to-population ratio, if all 20 million newly unemployed people as measured by the decline in the employment-to-population ratio were counted in the unemployment rate, we would have found an increase in the unemployment rate from 4.2% to 16.4%, the highest level since 1939.

The reason for the discrepancy between the two is that many of the newly non-employed people are reporting that they are not actively looking for work, so they do not count as unemployed but rather as exiting the labour force. Consistent with this, we find an extraordinary decline in the adjusted labour force participation rate, from 64.2% to 56.8%. For comparison, Panel C of Figure 1 plots the historical evolution of the labour force participation rate over the last 15 years, which includes a historically large decline in participation between 2008 and 2016 of three percentage points. Even this cumulatively large decline in participation over an eight-year period is dwarfed by the historic decline in participation that we document.   

How unusual are these patterns? We have already seen that the size of the changes in each variable is exceptional, at least for employment and changes in labour force participation. What about their simultaneous changes? Figure 2 illustrates the historical comovement of the employment to population ratio with unemployment in Panel A and with labour force participation in Panel B. Panel A shows that, historically, unemployment and employment are very strongly negatively related. Within short periods, movements in one are reflected almost perfectly in the other as workers move from employment to unemployment and back. Slow-moving demographics cause the relationship to gradually change over time, as can be seen by decadal shifts in the curve, but short-run movements are close to linear. The change that we document since the Covid-19 crisis jumps out: we see an enormous change in the employment-to-population ratio with a much smaller change in unemployment that would have typically been expected. This pattern is therefore qualitatively different from the historical experience of US labour markets, even after taking into account the size of the changes.

Figure 2 Historical comovement of key employment statistics

Panel A: Employment-to-population ratio vs unemployment rate

Labour markets during the Covid-19 crisis: A preliminary view 3

Panel B: Employment-to-population ratio vs labour force participation rate

Labour markets during the Covid-19 crisis: A preliminary view 3

Notes: Each panel shows comovement (by decade) of key official employment statistics compiled by the Bureau of Labor Statistics (BLS) as well as employment statistics based on Nielsen surveys (red circles with dates). 2020M2 are the values from the Nielsen pre-crisis survey. 2020M3 are the values from the Nielsen crisis wave.  

We find a less unusual pattern relative to historical experience when looking at the change in labour force participation and employment to population ratios in Panel B. There, we see that the two tend to commove positively and closely on average: periods when employment growth is strong are also periods during which more people are entering the labour force. In that sense, the simultaneous decline in employment and labour force participation is mostly unusual because of the size of the changes. Still, the drop in labour force participation appears large relative to the historical experience given the size of the decline in employment, which is consistent with the smaller than normal increase in unemployment. 

Why do so many unemployed choose not to look for work? Both surveys included a question asking those who said they were neither working nor looking for a job to select among possible answers why this was the case. Prior to the crisis, most respondents out of the labour force claimed that it was because they were retired, disabled, homemakers, raising children, students, or did not need to work. Only 1.6% of those out of the labour force were claiming that they could not find a job as one of their reasons for not searching. At the height of the Covid-19 crisis with a much larger number of people now out of the labour force, we see corresponding declines in the share of homemakers, those raising children and the disabled. However, we see a large increase in those who claim to be retired, going from 53% to 60%. This makes early retirement a major force in accounting for the decline in the labour-force participation. Given that the age distribution of the two surveys is comparable, this suggests that the onset of the Covid-19 crisis led to a wave of earlier-than-planned retirements. With the high sensitivity of seniors to the Covid-19 virus, this may reflect in part a decision to either leave employment earlier than planned due to higher risks of working or a choice to not look for new employment and retire after losing their work in the crisis. 


It is still very early on in the Covid-19 crisis, but preliminary indicators point toward catastrophic declines in employment. Our surveys provide additional evidence on this decline in employment in the US, pointing to a 20 million decline in the number of employed workers. Most strikingly, we find a much less than proportional increase in unemployment, indicating that most of these newly unemployed workers are not looking for new work. Hopefully this reflects a transitory characteristic as these individuals face stay-at-home instructions and few work opportunities. But the wave of early retirements that we document suggests that more permanent changes may also be taking place. 


Baldwin, R and B Weder di Mauro (2020), “Economics in the time of COVID-19: A new eBook“, VoxEU column.

Coibion, O, Y Gorodnichenko and M Weber (2019), “Monetary Policy Communications and their Effects on Household Inflation Expectations,” NBER Working Paper w25482.

Coibion, O, Y Gorodnichenko and M Weber (2020a), “Labor Markets During the Covid 19 Crisis: A Preliminary View,” Working Paper.

Coibion, O, D Georgarakos, Y Gorodnichenko and M Weber (2020b), “Forward Guidance and Household Expectations”, NBER Working Paper w26778.

D’Acunto, F, U Malmendier, J Ospina, and M Weber (2020a), “Exposure to Daily Price Changes and Inflation Expectations,” NBER Working Paper w26237.

D’Acunto, F, U Malmendier, J Ospina, and M Weber (2020b), “Gender Roles and the Gender Expectations Gap,” NBER Working Paper w26837.

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