By Jo Constantz

The U.S. economy added just 266,000 jobs in April––far short of the expected gain of one million or more––casting doubt on the prospect of a swift recovery and raising concerns about possible labor shortages.

The leisure and hospitality sector, up 331,000 jobs, drove April’s gains. Yet these gains were tempered by losses in other sectors, including manufacturing, retail, couriers and messengers, and temporary employment. Overall, employment is still down by over 8 million jobs from its pre-pandemic level in February 2020. Factoring in economic growth projected for 2020, overall employment is short anywhere from 9 to 11 million jobs.

The report released by the Bureau of Labor Statistics on Friday showed far fewer jobs added than in March, which saw a gain of 770,000 jobs (revised down from 916,000). The weak gains tempered hopes for a rapid rebound and prompted concern that unemployment benefits have disincentivized many from returning to work. The labor participation rate rose, however, offering some hope for the months ahead as vaccination rates continue to climb and pandemic-related restrictions ease. 

“A year ago it was very easy to lay people off. It’s a lot harder to hire them back,” said Scott Brown, senior vice president and chief economist at Raymond James & Associates. “It’s going to be a pretty bumpy road here trying to match all the unemployed workers to available jobs over the next several months.”

Some point to extended unemployment benefits as a primary reason workers are slow to rejoin the workforce. While the leisure and hospitality sector––one of the hardest hit by the pandemic––posted the strongest gains, it was also the source of many anecdotal reports of labor shortages. Many bars, restaurants, and other businesses reported having difficulty hiring, even as they offered higher wages and more attractive hours.

Doug Levy, the general manager of Old Dominion Boat Club, a private club in Alexandria, Virginia, has had an especially difficult time finding workers.

“Trying to hire folks, it’s just become impossible––and it’s because, if I look around, I can see four or five restaurants out my window and every single one of them is hiring four or five cooks,” said Levy. “It’s a huge competition right now.”

Levy is working to hire four more workers and increase pay for all of his employees in order to compete. He expects these wage increases to be permanent, a substantial investment.

Already, he says, the club has been seeing more business than ever before––even pre-pandemic. “I’m scared. Really scared. How much business is going to start coming our way and do I have enough staff, can we take it, is everybody ready?” said Levy. “People are ready to go and they’re coming full steam so it’s like––oh my God.”

But strong matches between employees and employers like Levy are not made overnight. “Think of the labor market right now as a marriage market––you’re looking for that perfect pairing between worker and firm,” Nela Richardson, chief economist at ADP, said. “Yeah, there’s enough, but is it the right match? That’s the question that we have to ask.”

According to Richardson, that workers have been slow to return to work is a good thing. “Unemployment insurance has been a big factor, really providing a lifeline for workers by design,” she said. “That means that workers have the time to find the right match. Over time, longer-term, that leads to a much more robust labor market than if a worker has to take the first offer that comes along because they need the money.”

Economists believe that other factors––health concerns chief among them––ultimately outweigh unemployment benefits as the main motivation for those workers staying on the sidelines. Many are still worried about contracting the virus––especially those with preexisting conditions or compromised immune systems––and are hesitant to return to low-wage, customer-facing jobs. Some, especially younger workers, have not yet had the chance to get fully vaccinated.

Treasury Secretary Janet Yellen said that if unemployment benefits were really to blame for slowing job gains, then leisure and hospitality employment––typically low-paying––would not have increased so substantially.

Matthew Harrison is one of the hundreds of thousands of workers who returned to the restaurant industry in April. Before the pandemic, Harrison worked as a barista at two different coffeeshops in Brooklyn. He was able to get by on unemployment during quarantine. After being unemployed for over a year, since last March, he was hired last week.  

Since so many businesses were hiring for a wide variety of roles, he was confident he would be able to find a good job. He interviewed at three restaurants over the past several weeks, eventually accepting a job as a bartender, which he was hired for despite not having prior experience. 

“It definitely made it a lot easier for me to get my foot in the door in something that would be paying more, maybe working a couple less days,” he said. Harrison brings home a bigger paycheck as a bartender––$15 an hour, plus better tips––than he was before the pandemic as a barista, and is able to work fewer hours.

Despite strong gains, the leisure and hospitality sector is still down 2.8 million jobs compared with February 2020. It remains to be seen when the industry will fully recover. The sector’s revival is largely dependent on how Americans decide to spend their summer: whether they will resume traveling and return to bars and restaurants or instead take a more cautious approach.

Also, many schools still have not resumed in-person full time, constraining those––especially women––who have no childcare options. These parents may not return until next fall when schools reopen fully.

As the recovery continues, equity will remain a top concern. The Black unemployment rate rose to 9.7%, while rates for other racial and ethnic groups held steady or decreased. “As we move towards a recovery, it’s also important that we consider whether the recovery is equitable,” said Daniel Zhao, a senior economist at Glassdoor. “Even though a rising tide lifts all boats, it might not lift all boats equally.”

The manufacturing sector saw a decline in employment, due in large part to car factory shutdowns as a global semiconductor shortage continues to plague the auto industry. An unexpected decline in courier and messenger employment signals consumers may be returning to pre-pandemic shopping habits––buying groceries in person, for instance, instead of via a delivery service. 

Yet economists caution against taking one month’s data as definitive––any sector’s gains or losses may be temporary and not indicative of meaningful, long-term trends. In addition, some workers may be classified incorrectly––whether furloughed, hoping to be rehired, or laid off permanently––which may interfere with the unemployment rate.

Despite this month’s weaker-than-expected report, economists still expect healthy job gains in May and June. It remains to be seen, though, whether gains in the coming months will be broad-based or concentrated in the hardest-hit sectors, and in what ways our economy will be permanently changed. Some industries may be slow to recover or may never recover.

Still, economists see many reasons for optimism. Household balance sheets, consumer spending, and retail sales remain strong, especially with the latest round of stimulus checks in March. 

“Businesses are opening up, they’re starting to turn on their cash registers and open the doors” said Beth Ann Bovino, chief U.S. economist at S&P Global. The retail sales numbers that came out in March showed that, for the first time in a long time, people spent money on new clothes. 

“Meaning there’s hope: That this virus is passed, and people are going to go out and spend,” said Bovino. “I expect that we’ll see some of those customer-facing service jobs to start to come back. It’s just taking a little longer than what people had hoped for.”