REconomy Podcast: What a Changing Labor Market Means for Housing

In this episode of the REconomy podcast from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi discuss how long-term shifts in the U.S. labor market have been accelerated by the pandemic, and what that may mean for housing in the months and years ahead.

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“It all spells, actually, very good news for the housing market in the spring, because right now, we're hibernating for the winter in the housing market, while all of this is going on. But, where it becomes more interesting and more important for housing, is in March and April and May. And, certainly, we have high expectations for much better economic news in the spring as well.” – Mark Fleming, chief economist at First American


Odeta Kushi: Hello, and welcome back to another episode of the REconomy podcast where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American.

Mark Fleming: Happy New Year Odeta.

Odeta Kushi: Happy New Year Mark. Today we're discussing a topic that is top of mind for just about everyone, I would say, and that is the labor market. And now you may be asking yourself, isn't this a real estate podcast? Yes. But being employed is a prerequisite to homeownership, as well as an overall healthy economy. And so today, we'll be covering something that is the heart of our economy. And as a lot of us know, this pandemic-driven recession resulted in the unemployment rate hitting 14.7% in April, which is the highest rate since the Great Depression. And, while we know that the labor market continues to recover, that recovery is slowing. Even though we've gained more than half of the 22 million jobs lost at the onset of the pandemic, there is a concerning rise in permanent unemployment, which has some implications for the recovery. But before we get into all of that, Mark, I kind of want to talk about what kind of jobs were lost in this decline? And what kind of jobs were safe? Were we just discussing a recent report that talked about our jobs, specifically economists, and why they've gone relatively unscathed in this decline?

Mark Fleming: So, you gave away the answer before we can tell them about the report? Yeah, it talks about the idea of what kinds of jobs are more, or less, at risk of getting the virus. This was a report that came out in the spring of this year. And lo and behold, there's the obvious ones. If you come in contact, as a health worker, you're clearly more at risk. If you have to be in proximity with other people, like in the service sector, you're more at risk. And what they found was contact with others, and proximity to each other is zero for economists. Shocking. I'm wondering what that says about you and I. We clearly don't like working with people.

Odeta Kushi: Yeah, we're definitely the introverts of the social sciences, I would say.

Mark Fleming: That's absolutely true. Now, that said, more broadly speaking, it does get to this idea of, you know, that many types of jobs, in fact, many of what we classified as essential workers, basically put people at exposure risk. But, they also have very important implications in terms of income levels, and things like that, in terms of who got to stay at home and work and who didn't have the option to stay at home and work in the recession. And now, even in the recovery that's happening today.

Odeta Kushi: Absolutely. And you got to this a little bit before, but this has been disproportionately hurting the service sector. And a big reason why is because we've had to shut down restaurants and bars. And so a lot of these workers have obviously, you know, lost their jobs. And we've seen that in huge numbers, especially at the onset of the pandemic, even though some of those people are getting their jobs back as we started to open restaurants back up in the fall. Although that is starting to reverse in the winter.

Mark Fleming: Well, yes, the good news, and much of what the original rebound in the labor market that you talked about earlier has to do with, is many of those service sector jobs, most actually, of those service sector jobs in the spring, were sent home as temporary layoffs, with the expectation that when allowed to reopen, they would return. The return, though, didn't come back at full capacity. We have all the rules and regulations about social distancing, and 25 or 50, or 75% capacity restrictions in restaurants and bars and places like that. And so not everybody who was temporarily laid off necessarily came back now. Even so those rebounds were great. They're sort of 60, 70, 80% in many of these sectors have already returned to work. But what really matters is that remaining 20 or 30, or 40, if you're still classified as temporarily laid off, but have been laid off now for almost a year at this point. Is that really temporary at all?

Odeta Kushi: And we know that the permanent job loss share is continuing to increase. I think the last report that we looked at in November, it was hovering at about 35%. And that's really concerning from an economist’s standpoint, because permanent job losers are more likely to get discouraged. And what that means is that they're less likely to kind of pick up and start looking for a job once more. But, the other side of that is that they might start to lose their skills. And that results in a skill mismatch.

Mark Fleming: Whoa, whoa, whoa, too much economics here. What? Let's try that, again. If you're laid off and out of the labor force for a long time, you have a skill mismatch? What do we mean by that? You lose touch with where you'd work before, you don't have the same skills. And that generally depends on honestly the type of job that you have. I don't know that being out of work, as a restaurant server, or a bartender necessarily creates big skill mismatches over a year, okay, maybe you don't know the latest and greatest, most popular drink at the bar these days. But it does have bigger implications for other kinds of jobs that are much faster moving, more in technology and software development in places like that. This skill mismatch problem of basically not being able to return as easily to the labor force, or to work, there's another economics term, I should try not to use. Returning to work, with a skill that is still valuable in work, that's the key.

Odeta Kushi: And you're getting to kind of the heart of the issue here, a skill that is valuable. And that speaks to the mis…I'm not gonna say mismatch, I've learned my lesson. But it speaks to the kinds of jobs that are open right now the kinds of jobs that are in demand, versus the types of jobs that people are looking for. And that really brings us kind of back to what we were talking about, which is what kind of people lost jobs? People in the service sector. Younger, less educated, lower-wage workers are the kinds of people that lost their jobs. But, we're seeing the types of job openings right now in high-tech sectors in kind of higher skill, higher-paid positions. And so this is what I mean by mismatch is the types of jobs that are open are not necessarily the types of jobs that people are looking for, especially those who are unemployed, and that has negative implications on the economy.

Mark Fleming: That's absolutely right. That's not necessarily something that is purely pandemic driven. We already saw in our economy, even prior to the pandemic, that there's a broad shift in growth in our economy, largely in technology, which is a sub-sector of the very, very large service sector. The parts of the service sector that are more oriented towards technology, and software and AI and machine learning and all those kinds of things, have been growing relative to an otherwise relatively stable portion of the service sector, like working in restaurants and bars and things like that where the general demand for those services is local. Those are called locally untradable services that people always need – the restaurants and bars, and dry cleaners and nail spas and places to go to in our local marketplaces. And that's really who got hit in the pandemic. And also, with the restrictions, there's not as much demand for those types of local jobs as there was before, while there's still tons of demand, even more so now, for the software developer types of jobs.

Odeta Kushi: Absolutely. And you know, the way I like to think of it is typically in recessions, I'm still going to get a haircut right? In the in the Great Recession, I'm still going to go out and get the haircut, but this is a health-driven crisis. And so those barbers were significantly impacted in this decline. But, that is not the norm. That is certainly not the norm in past recessions.

Mark Fleming: Well, you luckily didn't see me without those haircuts because it got messy. And as I like to say, you know, that's consumption gone. You know, you don't catch up on your haircuts, you don't catch up on the visits to the restaurants, as much as I might like to try and catch up at happy hour with my frosty cold beverages. It's just not going to happen. And that's where we talk about this dynamic in a more economic sense.

Odeta Kushi: Okay, well, you started it, so I'm going to continue it something in economic sense. Economists love love curves to explain relationships, right? We've got we've got a lot out there. And the concept that you were just describing is something that we like to call the "Beveridge curve."

Mark Fleming: Now you see my reference there, huh? Frosty beverages?

Odeta Kushi: Yes, yes, the deferred consumption. But the Beveridge curve here is spelled a little bit differently. And really what it's explaining is the supply and demand dynamic between unemployment and the job vacancy rate. Over to Mark for the non-economist explanation of what I just said.

Mark Fleming: So, say that, again, the supply and demand dynamic? Okay. So, when the unemployment rate is really high, that means there's not a lot of demand for jobs. Ergo, in April, when the unemployment rate was 14.7%. And there was not a lot of demand for people to work in many of those service-sector jobs as we refer to. Conversely, supply is a function of how many people are out there and how many job openings there are. And so, the more openings there are relative to that demand, that's an indication of how many people are getting the jobs when there's not many openings. In other words, the jobs are being filled really quickly. That implies a lot of supply. And so, this Beveridge curve sort of maps out this relationship – how much demand by industry in the economy there is for labor, and the vacancy or opening rates measure how many people are out there who want to get the jobs?

Odeta Kushi: Right. And this relationship is usually, if you think about it in graphical terms, downward sloping. And what's happening in our economy right now is that this curve is shifted to the right. And what that means is that for any level of unemployment, there are more job openings. And that's because employers are struggling to find workers with the skills needed to perform the kinds of jobs available. In other words, they're looking for a programmer, but the person that's out there looking for a job was a waitress. And so this, this curve has shifted to the right, that's indicating, you know, there is this kind of skills, I'm going to say mismatch, again, because I can't think of a synonym right now.

Mark Fleming: Oy vey! Mismatch...shifting to the right...I'm having econ 101 headaches here.

Odeta Kushi: I know. I'm sure there's a couple listeners that that are, you know, being placed back into their econ 101 classes right now.

Mark Fleming: I always like to think of it in in sort of, yes, unrealistic, but stark and simplified terms. And that is to say that, you know, there's a lot of people a lot of openings for, say, software programmers, but the people who got laid off, don't have the skills to be software programmers. Skill mismatch. And that also has been something that's been around in our economy and growing in our economy over the last couple of years. But the pandemic has significantly accelerated that or made more apparent, actually, that skill mismatch problem. Lots of jobs available in certain sectors. But, the people who are unemployed are not in those sectors.

Odeta Kushi: Absolutely. But it's not all bad news, right? It's not all bad news, because this is driven by a health crisis. And so, with this news of a vaccine in 2021, fingers crossed, means is that if we're all safely vaccinated, that businesses can start to open up. And what that means is a pretty quick rebound in all of the service sector jobs that were lost, it means we'll have all of this pent-up demand, we have all... okay, I said demand. But we're really excited to get back into the restaurant scene, we're really excited to get back to bars. A lot of us have increased savings, because we haven't been going to these bars and restaurants for all these months. And so, when things open back up again, you're going to have people consuming, and that's going to make more jobs, it's going to open up the restaurants, you're gonna get your waiters and waitresses back. And we should see a very quick, quick rebound in those types of jobs, which is some light at the end of the tunnel here.

Mark Fleming: Pent up demand, I'm so excited to go and sit down in a restaurant and not cook my own dinner. And I don't think I'm alone. But actually, there's now concern that there will be too many of us, too excited. And the sectors that have been under lockdown and under capacity won't be able to handle us. And in fact, drive inflation up. Topic for another episode, I suspect. Completely agree. And just to bring it back full circle, because we do like to talk about housing here. You know, what does all of this mean for the housing sector? Actually not a lot in terms of the fundamentals of the housing market and the sort of the aspects of the labor market recovery that we talked about in the hopeful, strong rebound, particularly in the service sector, as the vaccine comes out. It all spells, actually, very good news for the housing market in the spring, because right now, we're all, you know, hibernating for the winter in the housing market, while all of this is going on. But where it becomes more interesting and more important for us, is in March and April and May. And, certainly, we have high expectations for much better economic news in the spring as well.

Odeta Kushi: I absolutely think that we need to tackle the prospect of inflation. But you're right, I've been reading quite a bit about you know, well is hotel capacity going to be able to handle all the people that want to travel day one. And all of this remains to be seen, but it's certainly something that we're considering, where this recession is not like past recessions. And there is the ability for a very quick rebound, as we've already really seen in the last couple of months. Put aside the fact that that the winter months might be a little bit harder, simply because there was an uptick in virus cases and closures of businesses once more, but hopefully that that should turn around as more folks are vaccinated. That's a great point, Mark, and probably a good place to stop on some good news. But, certainly we've talked about this before, and we're sticking by it in 2021. The housing fundamentals are strong. You know, you're still have a whole bunch of 30-somethings looking to buy that first home, you still have mortgage rates, hovering near historical lows, where are we just saying this morning? They just hit 2.65%.

Mark Fleming: 2.65%. A 50-year low Odeta. Are you still house hunting?

Odeta Kushi: I am still house hunting.

Mark Fleming: Come on. Your purchasing power is through the roof right now.

Odeta Kushi: Okay, I have no one to blame, but myself and the fact that I am extraordinarily picky. But, certainly I need to jump on this 2.65% bandwagon because that is cheap, cheap financing, and really is driving a lot of the demand that that we've been seeing and that we will continue to see in the housing market. So, the housing market remains a bright spot, but so does the broader economy, I would say in 2021.

Mark Fleming: Hope springs eternal.

Odeta Kushi: There you go. And we will end on that. So, thank you for joining us on this episode of the REconomy podcast. Be sure to subscribe on Apple, Google Spotify, or your favorite podcast platform. You can also sign up for our blog at And if you can't wait for the next episode, follow us on Twitter @OdetaKushi and @MFlemingEcon. Until next time.

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