How a Shifting Financial Position May Be Impacting Worker Choices

by | Dec 22, 2021

Improved financial position may have enabled a significant number of workers to step onto the sideline—but that party may be ending soon.

By Aaron Hirsh for the Fund for Our Economic Future

One of the first theories I explored in the national scan of existing research related to the talent shortage is the effect of changing financial position over the course of the pandemic.

The theory behind this claim is that workers are leveraging stronger financial positions attained during the pandemic to remain out of the labor force. Let’s look at the evidence.

First and foremost, we cannot overlook the fact that not everyone has found themselves in a stronger financial position. The pandemic inflicted economic pain on a great number of people—and we must never lose sight of that. Indeed, to understand how the impact of the pandemic threatens to widen economic inequities and work to prevent this, we must factor the disparate financial realities of different workforce segments into our understanding of worker behaviors and the talent shortage.

But for a substantial number of citizens who were actually better off financially during the pandemic, at least for a time, there were a few key reasons reflected just in the way they used their money before we even begin to explore the effects of government spending:Spending decreased. The pandemic disrupted—among countless other day-to-day activities—typical spending habits for many Americans. With canceled vacations, closed restaurants and child care centers, and suspended office commutes for many workers, many households reduced their typical spending.

Personal Consumption Expenditures, which account for goods and services purchased by households[1], declined by more than $2.5 trillion from February 2020 to April 2020. While consumption rebounded quickly, it took until January of 2021 for spending to reach pre-Covid levels.

The Stock Market Surged. The market has gone up nearly 50% since the beginning (and over 100% since the market nadir on March of 2020)[2], and for the majority of Americans who hold stock, this has further strengthened their financial position. This particularly benefited older Americans, with the average 55-year-old American seeing their wealth increase by $35,000 during COVID. Of course, not everyone enjoyed these returns. We know that wealth holdings vary by race. This is true for overall wealth, and for equities specifically. From the Federal Reserve:

“While more than half of White and other families have equities, just over 24 percent of Hispanic families and just under 34 percent of Black families have any equities. Conditional on having equities, there are also substantial gaps in amounts held. For example, the typical White family has $50,600 in equities they could tap into in an emergency, compared to just $14,400 for the typical Black family and $14,900 for the typical Hispanic family.”

This study uses data from 2019, it’s likely this disparity has held for 2020 and 2021.

Savings Increased. Personal savings rate rose dramatically when the pandemic hit, and remained above pre-pandemic levels until this summer.[3]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]

But How Did this Influence Decisions, and What Happens Now?

It makes sense to infer that for people with a stronger financial safety net in place, decisions about work have been less urgent in nature—people can afford to be choosier about the type of work they enter into, and take more time to decide.

But more recent data shows that savings levels and spending levels are both trending upwards[4] In fact, consumption has now rebounded to well above pre-pandemic levels. PCE was more than $1.5 trillion above the same month in 2019. And with the recent surge in the Omicron variant of COVID threatening once again to close restaurants and public venues in Northeast Ohio, uncertainty remains a prevailing theme.

The data on financial position serve as a starting point—but the surveys and focus groups that we conduct in the coming weeks with individuals across the region will shed light on how these national trends have played out for different segments of workers in Northeast Ohio, as well as how people are looking ahead to the immediate future.

Stay tuned as we continue to explore what existing research can and can’t tell us about worker decisions and the talent shortage, and join in the conversation with us on Twitter. We want to know: Are you a worker for whom a better financial position allowed you to leave the workforce for a time?

About “Where Are the Workers?”

“Where Are the Workers” is a collaborative, multi-part analysis led by the Fund for Our Economic Future, Team NEO, ConxusNEO, PolicyBridge, and the Summit & Medina Workforce Area Council of Governments, with additional support from The Kresge Foundation. Additional organizations contributing to this work are the Alliance for Working Together Foundation, the city of Aurora, Cuyahoga County, Firelands Forward, Greater Cleveland Partnership, Growth Partnership for Ashtabula County, Lake County, Lorain County Chamber of Commerce, and the city of Ravenna.

This blog series dives into one of three components of our multi-part analysis; in addition to the national scan of existing research on the talent shortage, we are conducting research (through a survey and roundtable discussions) with Northeast Ohio employers and working-age adults. The employer survey is live now through January 10 and is open to anyone who makes hiring decisions for a Northeast Ohio business.Sources:

[1] For more information about what types of spending fall under PCE:

[2] S&P 500 daily close as found on Yahoo Finance as of December 22, 2021

[3] Source: FRED

[4] Personal Consumption Expenditures increased 1.3% in October 2021, continuing a trend of steady growth since Q4 of 2020.