Big Cities Are Holding Back the U.S. Jobs Recovery

(Bloomberg Opinion) -- The U.S. unemployment rate was a seasonally adjusted 5.2% in August. In and around the country’s biggest cities, unemployment was much higher than that: 10.2% in New York City, 10.1% in Los Angeles County and 8% in the core of the Chicago metropolitan area.

A big part of what’s going on here is what was described last month in a National Bureau of Economic Research working paper as the “urban and industry bias of remote work.” That is, big, dense cities employ lots of skilled knowledge workers. These people have generally kept their jobs during the pandemic, but most stopped going into the office when Covid-19 arrived and many have yet to return, with ill effects for the people who used to serve them lunch, shine their shoes, clean their suits, drive them around and so on. As the authors put it:

Many high-skill service workers started to work remotely, withdrawing spending from big-city consumer service industries dependent on their demand. As a result, low-skill service workers in big cities bore most of the recent pandemic’s economic impact.

This got me wondering what the pandemic’s economic impact on the U.S. looks like if you separate out the biggest cities. Are their troubles weighing down the national numbers to an extent that it misrepresents what’s going on elsewhere? The data that enable such a calculation for unemployment rates through August came out on Wednesday. Here’s what they show.

The chart uses numbers that aren’t adjusted for seasonal factors because the Bureau of Labor Statistics only releases seasonally adjusted unemployment-rate estimates for an odd and inconsistent smattering of locales. The national unemployment rate was 5.3% in August without the seasonal adjustment versus 5.2% with it, so it’s not a huge difference. The data show a gap between the combined unemployment rate of the New York, Los Angeles and Chicago metropolitan areas and that of the rest of the country that’s been much bigger during the pandemic than at any other time since 1990. Removing those three metro areas from the picture delivers an unemployment rate of 4.9%, less than the 5.3% national figure but not enough to dramatically revise one’s picture of the U.S. economy.

Unemployment rates may not be the best way to measure the impact, though. They represent the estimated number of people living an area who are actively looking for a job divided by the number who are employed plus those who are actively looking. Those who have stopped looking for a job, or left the area, don’t show up in the calculation.

Those factors are, however, reflected in changes in nonfarm payroll employment. Other big metro areas with lots of high-skill knowledge workers, such as San Francisco and Boston, don’t have unemployment rates nearly as high as New York’s or Los Angeles’s but have nonetheless seen big payroll job losses. I added up the numbers for the seven metro areas that have shed more than 150,000 jobs since February 2000 (listed on the chart in descending order of the losses), and the result was pretty striking:

These seven metropolitan areas accounted for 21.6% of U.S. payroll jobs in February 2020 and 25.1% of the job losses in the first two months of the pandemic. Now they’re responsible for 44.8% of the pandemic jobs deficit.

Nationally, payroll employment is down 3.5% since the beginning of the pandemic. In the seven metros employment is down 7.3% — still worse than the 6.3% national decline during the Great Recession. In the rest of the country it’s down 2.5%, still short of a full recovery but getting pretty close. The pandemic jobs deficit isn’t just a big city thing, but it’s starting to look as if it may soon be mostly a big city thing.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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