Presented by Beacon Economics
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The public health mandates implemented in response to the COVID-19 pandemic are having a devastating effect on the Los Angeles County labor market. While many businesses remain closed or operating at reduced capacity, the employment declines remind us that just because a job is considered essential, does not mean employment in that job is guaranteed.
COVID-19 Hammers LA Employment
The novel Coronavirus (COVID-19) has created a worldwide economic shock, one in which Los Angeles County is far from immune. As many businesses have been closed or are operating at reduced capacity due to the health-mandates designed to slow the spread of the virus, the region is in the midst of both a supply and demand shock as supply chain disruptions, employment layoffs, and reduced consumer demand leave Los Angeles County operating well below its potential capacity.
The current economic situation is highly unique in that lost or delayed consumption and business activity are not the result of imbalances in the economy, but rather are self-imposed. Therefore, the length of time before the health-mandates are fully lifted, coupled with consumers’ confidence to huddle together in large crowds, as well as the economic damage caused throughout the mitigation phase will be the primary factors determining when and to what degree the Los Angeles County economy returns to normal.
Nowhere is the damage from the global pandemic more evident than in the labor market, where Los Angeles County shed 675,000 jobs from April 2019 to April 2020, a decline of 14.8%. The job loss prompted the unemployment rate to increase to 19.6%, an increase of 15.3 percentage points from just a few months earlier. Labor force growth had been gaining momentum throughout 2019 and into early 2020. However, the health-mandates and resulting shock to the economy brought this growth tumbling down, falling 2.2% year-over-year in March 2020 and 4.9% year-over-year in April 2020.
This decline in the labor force indicates that the unemployment rate does not fully reflect the damage suffered in the labor market resulting from the pandemic, as a number of discouraged workers have simply given up looking for work and therefore are no longer counted among the unemployed.
The Leisure and Hospitality sector led job declines in April, shedding 222,100 positions, a drop of 40.8% year-over-year and accounting for roughly 33% of job losses in the County. As segments of the economy reopen, many of these jobs will return, but the impact of the public health mandated closures, particularly the suppressed levels of leisure related travel, means that a significant number of jobs in this industry will likely be slower to recover.
While nearly every industry experienced job declines in April, the Leisure and Hospitality (-40.8% or 222,100 jobs), Retail Trade (-20.9% or 86,900 jobs), Professional Services (-12.8% or 81,700 jobs), and Education and Health Care (-9.3% or 78,200 jobs) sectors suffered the worst declines in terms of the absolute number of jobs lost. The substantial job losses suffered in the Health Care industry may have come as a shock just a few months ago. However, the decline in demand for many non-emergency medical facilities, such as dentists’ offices, provides evidence of the demand shock caused by the pandemic, as consumers choose to push non-emergent medical needs down the road.
“Essential” Doesn’t Guarantee Employment
Employment in Los Angeles County is highly diverse. However, while impacting every industry, the virus has had a more profound impact on some industries than others. As the County progresses through the phased reopening of the economy, a similar trend will likely emerge; some industries will recover faster, while others lag behind. Using data from the U.S. Census Bureau and the state mandated subset of essential industries, Beacon Economics (Beacon) estimates roughly 60% of workers in Los Angeles County are considered essential workers, while the remaining 40% are deemed non-essential. Of course, the employment numbers from April clearly remind us that just because a job qualifies as essential, does not mean employment in that job is guaranteed.
As a method for gauging the potential labor market impact during the recovery phase, we utilize data from O*net, which is a U.S. Department of Labor sponsored data product which evaluates a variety of job-related characteristics for each occupation. As a result, we can evaluate occupational risk to social distancing and other public health measures used throughout the mitigation and recovery phase of the pandemic. Using the detailed occupational context measures in the O*net data, Beacon estimates the degree to which each occupation is exposed to a high level of contact on the job and the likelihood of each occupation being able to work from home. The intersection of contact risk and work from home ability is important in understanding the risk each occupation faces as the Los Angeles economy moves forward.
To facilitate the analysis, Beacon created a “Beacon Vulnerability Index,” which attempts to identify those occupations that are at high risk of being impacted during the mitigation and recovery phase. Occupations that have a high degree of contact on the job (measured by the frequency of contact and the proximity of contact) and a low probability of being able to work from home are considered high-risk jobs, while the remainder are considered “low-risk” jobs.
Based on this “Beacon Vulnerability Index,” roughly 34% of the roughly 2.2 million non-essential workers fall into this “high-risk” category (i.e. these jobs have a high risk of contact on the job and are likely not able to work from home). On the contrary, 56% of the roughly 3.4 million essential workers fall into this “high-risk” category, a considerably larger share than in the non-essential workforce. A few common features emerge between the high-risk essential workers and high-risk non-essential workers. In each group, there is a high probability that the worker holds less than a bachelor’s degree and earns less than $25,000 per year in wages.
One striking difference is the breakdown in ages among high-risk essential and non-essential workers. The age distribution of workers in high-risk occupations in essential industries is much more evenly distributed compared to the age distribution of high-risk workers in non-essential industries, which is highly concentrated among workers under the age of 25.
As evidenced by the job losses incurred in April, whether an industry qualifies as essential does not guarantee no job losses in that industry. The Leisure and Hospitality industry is a prime example. Within this industry, 71% of the jobs are in restaurants and food services, which is considered an essential industry. Of those jobs, roughly 70% are considered high risk (i.e. high risk of contact on the job and unlikely to be able to work from home). Subsequently, 84% of all jobs lost in the Leisure and Hospitality industry in the County were from this essential subsector.
As the economy moves through the phased reopening, the classification of essential or non-essential will take on less weight. Instead, those who are the most vulnerable during the mitigation and recovery phase of the pandemic are the workers in occupations that are facing a severe demand shortage due to consumers concerns over the virus. While many are still deemed essential and allowed to operate, many of the jobs in this category have experienced the largest employment declines due to the high level of contact required, causing consumers to delay or forgo spending. As such, a key driver of the recovery of these jobs will be consumer behavior; is the sharp change in consumer sentiment a fleeting episode or here to stay?
** Los Angeles County refers to the Los Angeles-Long Beach-Glendale Metropolitan Division.