In a Nutshell

• As COVID-19 restrictions are relaxed and Michigan moves closer to “normal”, many are calling for a prompt end to unemployment benefit enhancements initiated under federal stimulus provisions
• A deeper look at Michigan’s employment data shows private sector employment is still down by almost 300,000 jobs from pre-pandemic levels, with job losses especially concentrated in low-wage sectors of the economy
• Policymakers should be cautious as they consider an early exit from the federally-funded $300 per week unemployment supplement while this large gap remains between pre-pandemic and current employment levels

With the lifting of an assortment of COVID-19 pandemic orders on June 22 – including mask-wearing requirements and capacity limits on indoor and outdoor gatherings – Michigan appears to have taken another step towards getting back to “normal”.  With that, business groups and some lawmakers nationally are calling for pulling back on enhancements to unemployment benefits initiated during the pandemic-related economic downturn.  The prime target: a $300 per week federal bonus added to state unemployment benefits; a bonus that some link to challenges businesses are having in attracting unemployed persons back to the workplace.  But are we really back to “normal” in terms of available jobs?

At first glance, the economy appears to be doing its part. In May, national unemployment fell to 5.8 percent – down from its peak of 14.8 percent in April 2020 following the initial COVID-19 lockdowns.  In Michigan, the news was even better with unemployment down to 5.0 percent in May after reaching a whopping 23.6 percent in April 2020.[1]  However, the unemployment rate itself fails to capture one important factor: workers who stopped looking for jobs during the slowdown.  These workers fall out of the labor force altogether, and it is likely that many of them will start looking for work again as economic activity picks up steam.

A deeper look at the data suggests employment in Michigan still has a long way to go to get back to pre-pandemic levels.  Michigan lost 293,800 private sector jobs between February 2020 (the last full month prior to the pandemic) and May 2021 based on seasonally-adjusted data from the U.S. Department of Labor; that means total private sector jobs in Michigan are still 7.7 percent below their levels before the economic slowdown early last year.

Further, just over half of these job losses are concentrated in four sectors that have been disproportionately impacted by COVID-19 restrictions: Accommodations and Food Services; Arts, Entertainment, and Recreation; Administrative and Support Services (where Temporary Help Services and Employment Services are key drivers); and a generic Other Services sector.  

The chart below shows employment within these four sectors fell by a combined 153,500 jobs during this period.  As might be expected, the greatest job decline occurred within the Accommodations and Food Service sector, where employment remains 21 percent below February 2020 levels. On a percentage basis, however, the Arts, Entertainment, and Recreation sector (which includes spectator sports, casinos, performing arts centers, and fitness facilities) saw a steeper decline of 30 percent; that equates to 16,100 jobs given the lower level of employment in this sector.  The Administrative and Support Services and Other Services sectors each saw job declines of close to 13 percent.  Combined, these sectors support just over 20 percent of total private employment in Michigan but account for 52 percent of the pandemic-related job losses experienced through May.

What else do these four sectors have in common?   They are all relatively low-wage industries.  In May 2021, average weekly earnings for all private sector employees in Michigan were $999.89.  In contrast, average weekly earnings in the Accommodations and Food Services sector were $313.26; about 31 percent of the statewide average.  Weekly earnings in the Arts, Entertainment, and Recreation sector averaged $298.08 (30 percent of the statewide average), while average weekly earnings for jobs within the Other Services category were $836.42 (84 percent of the statewide average).  (Note: earnings data is not available for the specific Administrative and Support Services sub-sector).  So, while virtually all sectors of the economy were negatively impacted by disruptions related to the COVID-19 pandemic, it is clear that those disruptions had a more severe impact on low-wage sectors of the economy.

With the re-opening of the state’s economy beginning to accelerate, employment numbers should continue to improve across all sectors.   But how soon will jobs be restored to pre-COVID levels?  Not as soon as some may like.  Economic forecasts coming out of last month’s state Consensus Revenue Estimating Conference suggest it may be until 2024 before Michigan sees a full restoration of pandemic-related job losses.  Long-term employment forecasts pegged Michigan wage and salary employment at 4.38 million jobs in 2023 – still 53,000 jobs shy of the 4.43 million jobs experienced during 2019.

With a significant gap remaining between current and pre-COVID employment levels, state policymakers should be cautious as they chart a path to transition to a re-opened economy and out of three large rounds of federal stimulus support over the past year.  For workers losing employment during the pandemic, the most significant component of the federal stimulus has been the enhanced unemployment insurance benefits, including the $300 per week federal supplement paid to unemployed persons.  That supplement is scheduled to continue through September 6. Other key federal stimulus provisions have included direct stimulus checks to households and the Paycheck Protection Program that helped businesses keep employees on the payroll.

As we noted in our state budget analysis, those provisions played a key role in helping drive up disposable income and thus support consumer spending even as the U.S. and Michigan experienced very large drops in employment and regular wage earnings.  And by supporting additional consumer spending, they also played a huge role in propping up state revenues.

However, business groups and some policymakers have pushed for an early end date for the $300 per week enhanced benefit payment, arguing that it is no longer necessary and represents a disincentive for persons to re-enter the workforce. Already, 26 other states have either ended or established an early end date for the $300 weekly supplement ahead of its scheduled September expiration.  The Republican-controlled Michigan Legislature followed suit and passed a bill that would end the enhanced benefit in Michigan; however, the lack of sufficient votes for “immediate effect” on the legislation effectively kills the legislation and means the federal supplement will likely continue in Michigan until September.

To be sure, there is logic in the argument that the $300 per week federal supplement could act as a disincentive to employment.  The federal supplement is paid on top of the regular state unemployment benefit, which averages around $318 per week.  So, for many unemployed, the enhanced benefit provides income equivalent to the income from a full-time $15/hour job; and since job losses appear to be concentrated in lower-wage sectors of economy, many may be receiving as much if not more from unemployment insurance as they would receive in regular wage income from returning to work.

Still, there is evidence that other factors are also at play in causing some to delay their return to employment, including lingering health concerns with COVID-19 and lack of available child care.  An early end to the federal unemployment bonus does not address those obstacles.  The most compelling reason for caution, however, is the remaining jobs gap from pre-pandemic levels.   An end to the unemployment supplement means less spending power for a lot of Michigan households.  Are there really 300,000 more jobs available today for them?