Posted by: Josh Lehner | August 4, 2021

In Search of Structural Changes in the Labor Market

Clearly the pandemic has upended our lives in many ways. We’ve changed some of our behaviors and formed new habits over the past year and a half. After the pandemic wanes, some of these adjustments will stick and some will not. Even as we cannot say for certain today which will or will not stick, let’s take a look at two possibilities that are at the forefront of a lot people’s minds.

First, while I am a labor supply optimist, that does not mean there are not some underlying changes in the workforce, and in the service sector in particular. The New York Times had an interesting podcast yesterday where they talked with a few business owners and a handful of former restaurant employees about what the past year has been like. It’s not hard data, but in the midst of everything going on, anecdotes are helpful.

In short the business owners have struggled to fill job openings and largely blame the federal government and the enhanced unemployment insurance benefits for that. The workers, on the other hand, acknowledge that UI is keeping them afloat financially and are not currently willing to jump right back into jobs that are physically demanding, underappreciated by both their bosses and the customers, and pay low wages. Many former workers say they have taken the past year to improve their health (better sleep and eating habits, more exercise), and are looking for jobs with better working conditions like regular schedules, paid breaks, and the like. Research has shown some job switching into retail, warehousing, and even the postal service as mentioned by the former Portland restaurant worker on the NYT podcast.

What do I think is going on? I believe everything in the above paragraph is true. Many service industry jobs are physically demand, underappreciated, and underpaid. That’s been the case for a long time. The pandemic and the federal aid that has kept household incomes strong, has better allowed workers to assess these conditions and reevaluate what they want to do, if they so choose. I do not believe that the enhanced UI is a problem problem, and to the extent it is, it is temporary and was purposefully designed to keep households afloat during the pandemic. But we have to acknowledge it is a labor supply constraint. Within low-wage jobs, workers who qualify for UI are seeing wage replacement noticeably higher than 100%. Depending upon your assumptions, it is 130-150% wage replacement for the typical restaurant employee. Now that excludes tips, and the fact that wages have risen noticeably lately makes the opportunity costs of not working today different, but still, it’s a clear piece of the puzzle.

Ultimately where our office lands on this today is we have made some structural changes to labor within the leisure and hospitality industry. On a population-adjusted basis we have lowered our forecast for leisure and hospitality employment by about 7%. Now, the total number of jobs increase over time, reaching historic highs in level terms, but they never fully regain their pre-pandemic peak on a per capita basis. Obviously it is hard to know today what the right adjustment is and as we learn more our office will adjust our forecast further. But between shifts in business practices when it comes to not cleaning hotel rooms every single day, to more counter service and QR codes at restaurants, plus some share of the workforce looking for jobs in other industries, some downward adjustment to the labor outlook is needed.

The second potential change relates to working from home. Numerous surveys show that workers like working from home and do not want to return to the office full time. A new report from Upwork even goes so far as to show that a sizable share of workers are willing to take a pay cut to stay remote, and even become freelancers in order to do so.

Here the real question continues to be where does remote work ultimately land. Is it a couple days a week or 100% remote? That’s what’s going to matter the most and we just don’t know yet. For now our office is of the opinion it will generally be a day or three a week instead of fully remote. Case in point, the share of workers who say they are telecommuting during the pandemic continues to decline. Now, this still represents an increase from pre-pandemic rates. We do not believe everyone is going back to a full five days a week office environment, but the fully remote shares are likely to remain relatively low overall. Such changes still can have some big implications for downtowns, commercial real estate and restaurants that rely on the lunch crowd, etc, but in general most of us will return to the office in the months ahead. And keep in mind that working from home is only something that about 1 in 3 jobs can realistically do in the first place. See our previous report on working from home for more details.

The other implication of the Upwork report is something to keep an eye on and frankly could bring about larger economic changes. We know business formation is up, which is encouraging for future economic and productivity growth. But it is up even more among new companies without “planned wages” — basically the self-employed. This could be white collar freelancers, but could also include broader increases in rideshare or food delivery or other on-demand type jobs in addition to more traditional side hustles and Saturday Market type ventures. Furthermore, while not seen in the U.S. data but we do here in Oregon, at least in the unbenchmarked data, the number of self-employed is running noticeably ahead of the payroll employment data.

Overall, I am a bit more skeptical of some of these broader potential changes in the economy. I generally need to see it in the hard numbers rather than relying on anecdotes. But we have to recognize that the pandemic has upended our lives in many different ways. The changes we have made in the past 18 months, and in those still to come will stick to varying degrees. Some shifts, like more e-commerce, strong home sales and even retirements, are really just accelerating these longer-term structural changes that were already occurring. In general I would place working from home in that group as well, however to the extent it is fully remote and/or an increase in freelancing and the like, that would be a new structural change in the labor market and overall economy. As always, our office will continue to monitor the data and adjust our outlook accordingly.


  1. Think there are a couple of other factors:
    1) Min wage to $15/ hr AMZN loves this, but then again they can afford it unlike mom-n-pop who are trying to snag workers but don’t have the margin
    2) Speaking of AMZN, retail service jobs are shifting to logistics jobs.
    3) Think the lack of new high-end employers means most new jobs are toward the min of pay scale. So we have organic growth of jobs, but OR population is flat as you’ve noted prior.
    4) Since the growth is in the lower wage jobs, a lot of people are tired of jobs that grind them and
    5) Since there is a lot of low end open jobs, the bars to quitting a bad job are low.

    Anyways, keep it up. I like your work and I say that as a rarely happy OR taxpayer 🙂

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