Author: Andrew Berger-Gross
Many economists, commentators, and advocates have referred to the aftermath of the COVID-19 recession as a “K-shaped recovery”, with high-wage employment growing rapidly and low-wage employment lagging behind. However, in North Carolina, low-wage workers have actually fared better than they did during previous recessions. This article uses data from North Carolina’s Common Follow-up System and Labor Supply and Demand Dashboard to show that the impact of the COVID-19 recession on our state’s low-wage labor market has been more complicated than the conventional wisdom suggests.
Our state has indeed experienced a shift away from low-paying employment and toward high-paying employment since the COVID-19 recession of 2020. We examine employment growth between 2019 and 2021, differentiating between low-wage and high-wage employment, defined here as real annual earnings of less than $18,000 per year and more than $47,000 per year, respectively.1 High-wage employment in North Carolina increased nearly 6% between 2019 and 2021, while low-wage employment, after ticking up in 2020, dipped below its 2019 level in 2021 [Figure 1].2 This pattern of divergence, with high-wage employment increasing and low-wage employment decreasing, resembles the letter K, which is why this post-recession period has been called a “K-shaped recovery”.
Although our state has shifted away from low-wage employment, we have not seen any deterioration in the employment outcomes of low-wage workers. In fact, low-wage workers are having better luck in the labor market than they were at this point following previous recessions.
Here we track the outcomes of workers who earned relatively low wages in the year prior to each of the last three recessions.3 Low-wage workers were more likely to be employed in 2021, the year following the start of the COVID-19 recession, than they were during the second year of the 2001 recession or the Great Recession of 2007-2009 [Figure 2]. Of those who remained employed, low-wage workers were also slightly more likely to move up the ladder to middle- or high-paying employment in 2021 than they were during previous recessions.
How do we reconcile these seemingly contradictory findings—a lower level of low-wage employment, but better outcomes for low-wage workers? It’s all about supply and demand. Demand for workers at the low end of the labor market was strong following the COVID-19 recession, leading to rapid job-finding and pay gains for those who sought such jobs. At the same time, the supply of workers at the low end of the labor market declined, making it difficult for employers to fill open positions and resulting in lower employment levels in low-paying sectors.
The number of job openings in North Carolina skyrocketed in 2021, while the supply of jobseekers fell below pre-recession levels, leading to a record-low number of jobseekers per job opening. These trends were particularly pronounced for low-wage jobs, such as Food Preparation and Serving-Related Occupations [Figure 3]. By the end of 2021, the number of job openings in Food Preparation and Serving-Related Occupations had more than doubled, while the number of jobseekers in this category was 18% lower than its pre-recession level.
What did the conventional wisdom about the “K-shaped recovery” get wrong? In part, it could be that low-wage workers experienced better outcomes in North Carolina than in other states. But primarily, the misleading narrative about the K-shaped recovery reflects confusion about how cross-sectional data—which offer point-in-time snapshots of the economy—differ from longitudinal data, which follow the outcomes of individuals over time.
Cross-sectional data—such as the payroll employment numbers that are reported each month in the news media—clearly show low-wage employment lagged following the COVID-19 recession, while high-wage employment grew rapidly. However, longitudinal data from the Common Follow-up System reveal that low-wage workers in North Carolina had better employment outcomes following the COVID-19 recession than they did at comparable periods during previous recessions.
Despite more than two years of uncertainty and disruption, we shouldn’t lose sight of the bright spots in the COVID-19 economy. The labor market in North Carolina has seen an expansion of employment opportunity during the past two years, leading to improved employment outcomes and higher earnings for low-wage workers. While economic inequality is a problem that predated the COVID-19 pandemic and continues to plague our state, the evidence presented in this article shows the employment situation of low-wage workers in North Carolina has in fact improved in recent years.
1Throughout this article, wage earnings are adjusted to 2021 price levels using the Consumer Price Index for All Urban Consumers and are reported rounded to the nearest thousand. “Low-wage” and “high-wage” categories are defined here based on year 2019 wage terciles. In 2019, the lowest-paid group of workers in North Carolina earned less than $17,532, while the highest-paid group earned more than $46,678.
2Middle-wage employment declined 5.7% in 2020, but then bounced back in 2021 to 0.4% above 2019 levels.
3“Low-wage”, “middle-wage”, and “high-wage” categories are defined here based on wage terciles in the year before each recession, i.e., 1999, 2007, and 2019.