People are working less. Who and why? The ADP Research Institute’s Data Lab has the answer behind this new trend.

MainStreet Macro: Why we care about the care economy

August 28, 2023 | read time icon 4 min

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Last week, I previewed the Federal Reserve’s meeting at Jackson Hole, an annual convocation of central bankers, academics, and business leaders.

This year’s theme was structural shifts in the global economy, so when I was asked to give remarks, I wanted to reflect on a labor market component that’s not often discussed – the care economy.

Often referred to as the workforce behind the workforce, the care economy is composed of healthcare and education professionals, the people who empower working families and other households by educating them, caring for their children, providing health care, and giving assistance to their elderly parents The care economy sustains our social infrastructure.

The pandemic and its lockdowns corroded this social infrastructure. Parents couldn’t send their kids to school. People couldn’t get needed medical care, either mental or physical.

This disintegration forced workers – often women –  to leave the workforce so they could deliver services that, before the pandemic, typically were provided by care economy institutions.

Thankfully, the pandemic is behind us. But has the care economy recovered? To find out, the ADP Research Institute observed monthly data on more than 12 million U.S. workers between January 2018 and June 2023, with a special focus on teachers and nurses.

Demand is outstripping supply

 A combination of demographic trends and pandemic effects have boosted employer demand for teachers and nurses.

In the United States, the fastest-growing populations are the youngest, from newborns to age 14, and the aging, people 65 and older. As such, there’s high demand for professionals to care for our kids, our elders, and ourselves so that we can maintain a productive workforce.

Job postings for health care workers are up 65 percent since 2018, but the supply of new nurses has grown at less than half that rate, at 30 percent, according to Bureau of Labor Statistics data.

The gap is even wider for teachers. From early childcare workers to college professors, jobs in education are up 95 percent. But the number of people entering teaching over the last five years is up just 5 percent.

New patterns: Nurses

Workforce patterns in teaching and nursing have changed since the pandemic.  The number of new nurses continues to grow faster on average than the overall labor market. Yet, while average salaries for nurses are higher than they are for most other professions, recent wage growth hasn’t kept pace.

Median base pay for nurses is basically flat this year compared to last year, while wages for all jobs combined are up more than 4 percent over the same time period. And while women make up the lion’s share of nurses, accounting for 87 percent of the workforce, wage growth for men in the profession is rising faster.

The sluggish growth in wages might be having an effect. In the past five years, average tenure for nurses has dropped by almost a year, from 5.7 years to 4.8 years. This could be an indication that more experienced nurses are leaving the profession.

New patterns: Teaching

Teachers were hit hard with furloughs and layoffs during the pandemic. Since then, employment growth for teachers has been slower than for the labor market overall.

Data shows a particularly big dip in employment in June and July of 2022. The number of teachers typically falls at the end of every school year, but last year was very different.

From 2018 to 2021, average teacher age and tenure fell at the end of every school year. This pattern is consistent with older teachers leaving the workforce.

In 2022, however, the drop in teacher employment was more than double the previous years. Yet average age and tenure increased. That’s consistent with younger teachers leaving the profession.

This year’s employment dip wasn’t as big as last year’s, but it still was higher than in years past, falling 11 percent from June to July. The average teacher age fell, but tenure held steady.

One explanation for this year’s smaller drop in teacher headcount is wages.

Median year-over-year pay growth surged from 8.4 percent in June to 18.5 percent in July as schools struggled to get teachers into classrooms for the fall. We might be witnessing a boom-bust cycle, where the supply of teachers slows and schools increase wages rapidly to entice more people to the profession.

My Take

In Jackson Hole last week, the focus was on structural shifts in the global economy since the pandemic. One topic of discussion was structural changes that might limit economic growth over the next decade.

With that topic in mind, we at ADPRI asked if the care economy has gone back to normal since the pandemic. The answer is no.

The care economy is seeing a decline in two of its primary professions, but for different reasons. Young workers are either exiting the teaching profession or avoiding it altogether. Contrast that with nursing, where entry-level workers are joining the profession at a rapid clip, while their older colleagues leave at a faster pace than they did before the pandemic.

The only way economies grow over the long run is when there are more workers, and when those workers become more productive. A vibrant and robust care economy is the first step to achieve those ends.