Class of 2021 Job Prospects in the COVID Economy

Unprecedented. It’s a word often tied to the ongoing pandemic, and a word that perfectly describes the jobs market awaiting the graduating Class of 2021. As soon as they slide their tassels from right to left, these new grads are heading straight from their virtual commencement ceremonies into an uncertain labor outlook—with the scars of last year’s freezes, furloughs, layoffs, and rescinded offers still fresh in their minds. Since the very first shelter-in-place orders were issued more than a year ago, workers under the age of 25—including many new graduates—were the hardest-hit age group. From March 2020 to now, workers under 25 experienced furlough rates 73% higher than those aged 25 and older and they’ve been terminated at rates 79% higher.

Yet, our platform data shows that—while uncertainty awaits—there’s room for cautious optimism. The small-and-medium-sized business economy, which employs nearly half (47%) of all American workers, is seeing a return to broad-based growth, with every sector experiencing positive growth rates, including hard-hit industries like Food and Beverage (+5.4%) and Accommodations (+7.1%). Desk-based industries in particular are seeing strong jobs growth. Relative to March 2020, the highest-growth industries right now are technology (+11.5%) and accounting (+8.3%).

This broad-based growth is good for graduates, but hiring overall is still well below pre-pandemic levels. And despite a resurgence of job prospects buoyed by the ongoing vaccine rollout and reduced restrictions, hard-hit industries still have enormous ground to make up—for example, Tourism has seen its jobs growth rate dip -27.8% overall compared to March 2020. Rounding out the five lowest-growth industries are accommodations (-18.4%), arts and entertainment (-13.7%), Sports and Recreation (-12.9%), and Food and Beverage (-9.2%).

Gusto enables more than 100,000 small businesses across the United States to take care of their teams, with full-service payroll, benefits, compliance, expert HR and more. This report analyzes leading indicators and changes to employment at small-and-medium-sized businesses between March 2020-March 2021. The findings reported below represent data points with meaningful sample sizes based on the distribution of Gusto’s customers.

Key Findings

• Youngest Hired, First Furloughed or Fired: Over the course of the year, new entrants to the labor force have borne the brunt of this recession. Through March 2021, workers under 25 years old experienced furlough rates 73% higher than those 25 or older — and those under 25 have been terminated at rates 79% higher than workers 25 or older.
• Highest-and-Lowest-Growth Industries for Grads: Relative to March 2020, the highest-growth industries right now are technology (+11.5%) and accounting (+8.3%). The lowest-growth industries are Tourism (-27.8%), Accommodations (-18.4%), Arts and Entertainment (-13.7%), Sports and Recreation (-12.9%), and Food and Beverage (-9.2%).
• Jobs Growth is Good, but Uneven: Overall, in February and March ‘21 the economy saw a return to broad-based growth. Each sector experienced positive growth rates by March ‘21, including hard-hit industries such as Food & Beverage (+5.4%) and Accommodations (+7.1%) But these hard-hit industries have significant ground to make up compared to professional services, which emerged from this past year relatively unscathed. Overall, professional services jobs are up 500,000 since March 2020, while the Accommodations and Food Services sectors together remain 1.6 million jobs below their March 2020 levels.

Monthly Industry Trends

All industries showed growth in March ‘21 including those hard-hit by the pandemic, such as Accommodations (+7.1%) and Food & Beverage (+5.4%). Other notable sectors driving growth in March were Communications (+3.9%), Finance (+2.2%), and Accounting (+1.2%).

Figure 1: Monthly Employment Changes Over the Prior 3 Months, by Industry

Longer-Term Industry Trends

While this monthly growth shows small businesses are returning to recovery mode, those in the hardest-hit industries still have enormous ground to make up to return to pre-pandemic employment levels. This difference is particularly stark when compared to desk-based industries that have been able to shake off this economic downturn and grow at a rate similar to 2019.

Table 1: Cumulative Industry Headcount Change, March 2020-March 2021

Figure 2: Cumulative Industry Employment Trends, Relative to March 2020 (%)

Quantifying the Jobs Hole

In the year prior to the pandemic, from March 2019 to February 2020, small businesses in Accommodations and Food services grew by 1.7 million jobs, an average of 138,000 per month. Over the next twelve months, through March 2021, these firms have lost 1.6 million jobs, shedding on average almost 130,000 jobs per month. Firms in Professional Services have seen virtually no change in their growth rate, gaining over 500,000 jobs in both the year leading up to the pandemic and again in these past twelve months.

Figure 3: Cumulative change in Headcount March 2020-March 2021

Impact of the Recession to Younger Workers

This pandemic has not only affected business unequally by industries, but has also impacted workers of different ages to different degrees. Here we examine the experiences of employees across the past year by age group: looking at workers just entering the labor market (under 25 years old) relative to those with relatively more experience (25 or older). Data points are relative to age-group trends from 2019-2020 to adjust for normal differences in these outcomes across these age groups.  

We find that younger workers have been impacted to a much greater extent by this pandemic, as presented in Table 2. The furlough rates of those under 25 years old is 73% higher than the rates of workers 25 and older, and termination rates of these younger workers 79% higher than those 25 and older.

Table 2: Rates of Employer Actions by Age Groups, All Industries

Keeping on eye on how these new graduates  in the labor market is particularly important because the impact of this recession on young workers can be felt for much of their careers. Economic research has found that young adults graduating in a recession earn less for 10-15 years afterwards, often because they settle for available jobs that are lower-paying: after the great recession one-third of college graduates accepted a job that did not require a college degree.