Hiring trends emerge in study into COVID-19 impact on job market

By: Stephen D'Angelo
Murillo Campello, Lewis H. Durland Professor of Management

Murillo Campello, Lewis H. Durland Professor of Management.

A new study that leverages big data on job-vacancy postings in recent months reveals several dimensions of the impact the COVID-19 pandemic is having on the U.S. job market and shows possible challenges to the scale and speed of a recovery.

The paper “Corporate Hiring under COVID-19: Labor Market Concentration, Downskilling, and Income Inequality,” authored by Murillo Campello, Lewis H. Durland Professor of Management at the Samuel Curtis Johnson Graduate School of Management, Johnson Ph.D. student Pradeep Muthukrishnan and Assistant Professor of finance at the University of Pittsburgh Gaurav Kankanhalli, was published at the end of May by the National Bureau of Economic Research.

“We find that firms have cut back on postings for high-skill jobs more than for low-skill jobs, with small firms nearly halting their new hiring altogether,” Campello said. “New-hiring cuts and worker ‘downskilling’ are most pronounced in localities where employment is concentrated in the hands of a few firms, in low-income areas, and in areas with greater income inequality.”

“Cuts are deeper in industries where workers are more unionized, such as airlines, shipping, and healthcare, and in the non-tradable sector, including activities like hospitality, supermarkets, car dealerships, food service, and clothing,” he said. “Access to finance modulates corporate hiring, with credit-constrained firms cutting their job postings the most.”

Job postings impacted

Declines in new job postings are progressively more pronounced in labor markets that became more affected by COVID-19. As the virus spreads, according to the researchers, companies cut weekly job postings by 10 percent of the 2017–2019 average in counties at the top of the weekly distribution of COVID-19 cases relative to those at the bottom.

Specifically, it was found that small firms cut job postings significantly more than large firms. Weekly new postings by small firms decreased by a striking 59 percent of the 2017–2019 average level more than their larger counterparts.

Hiring cuts are more pronounced at the high end of the worker-skill spectrum, with this ‘downskilling’ most pronounced in local labor markets lacking depth, where employment is concentrated within a few firms, in low-income areas, and in areas with greater income inequality. “This result is in contrast to literature pointing to new-hire upskilling in the aftermath of the Financial Crisis,” the researchers said.

Further, they found that firms cut back on job postings the most in low-income areas and areas that currently suffers from greater income inequality. This raises concerns about whether jobs lost to the pandemic are likely to return even when overall economic conditions improve.

“We show that the pandemic has its worst effects in places that already have the worst levels of economic inequality,” they said. “It is clearly going to make those differences more acute.”

Cuts in job postings are deeper in industries where workers are more unionized and in the non-tradable sector. Additionally, the data shows that firms in the non-tradable sector cut their job postings the most, reflecting the fact that this sector has been most affected by restrictions on in-person economic activity and social distancing imposed since COVID-19 began spreading.

Competition also plays a key part in hire postings, as employers in a competitive labor market may not reduce their hiring as much as those in more concentrated markets do. “This is because employers in a competitive labor market face the risk of being unable to rehire their workers when conditions improve,” they said. “In line with this argument, within-firm estimates show that firms cut their job postings more aggressively in less competitive labor markets.”

The researchers also found firms have increased their preference for part-time over full-time positions as reflected in their new postings. Firms are also hiring more into positions that are “core” to their operations following the onset of the pandemic. Given the forward-looking nature of hiring decisions, these results suggest important changes in the types of jobs firms may look to fill in the recovery, the researchers said.

Money Talks

Within their analysis, Campello and his team found that access to finance modulates corporate hiring, with credit-constrained firms limiting their job postings the most.

“Across all proxies, we find that credit constraints intensify the cuts in job postings,” they said. “For instance, firms without bank credit lines cut their weekly job postings by 13 percent of the 2017–2019 average, relative to firms with at least one credit line available.”

Further, economic policy responses such as the Paycheck Protection Program (PPP) and elements of the Coronavirus Aid, Relief, and Economic Security (CARES) Act have provided firms with infusions of capital, with which they were able to retain employees albeit with a decline in new hiring. The researchers evaluated the effectiveness of such programs by comparing the hiring decisions of public firms receiving funding with a matched group of control firms.

“We show that PPP recipient firms cut their job postings by more than other firms in the days after receiving funding,” the researchers said. “Our findings highlight side effects of stimulus policies designed to preserve existing employment on firms’ new hiring.”

Policy implications

The study’s results, they said, highlight the challenges faced by policy makers, and considerations, in promoting job creation in a post-pandemic recovery.

“[Any] economic recovery may be hindered by the fact that hiring cuts have been particularly severe in concentrated local labor markets, among high-skill jobs, and across smaller firms with limited access to capital,” the researchers said. “The pandemic also brought about particularly deleterious effects to the hiring of workers in poorer areas and places where income inequality was already high.”

Economic stimuli focusing on countering the impact of COVID-19 has had on job hiring should consider these labor market dynamics. “This suggests that additional stimulus may be warranted targeting firms who hire for high-skill positions in rural and exurban areas,” they said as an example.