The U.S. labor market has recovered from past downturns at a consistent but gradual pace. This gradual recovery of the labor market is a manifestation of the slow pace at which jobless workers are reallocated to different jobs. Moreover, the reallocation process tends to be exacerbated by the long-term declining trend in middle-class jobs. The COVID-19 recession is different: Low-wage, nonroutine manual service jobs were the ones most severely affected, while the manufacturing sector, which offers many routine manual jobs at middle-class wages, performed relatively well. The fact that low-wage jobs were more adversely affected made the COVID-19 recession even more painful, exacerbating income inequality. But the same fact suggests that there will be a quicker recovery of the labor market.

This article appeared in the Second Quarter 2022 issue of Economic Insights. Download and read the full issue.