December Jobs Report: 2021 Ends on a Sour Note

January 7, 2022

Today’s jobs report is a disappointing bookend to a historic year in the job market. Employers added 199,000 jobs in December 2021 and the unemployment rate fell to 3.9 percent. Payroll gains slowed even more in December as the job market buckled under the weight of the pandemic. Additionally, the December jobs report does not fully incorporate the effects of the Omicron variant. New cases of COVID-19 have skyrocketed to record highs in recent weeks, casting a pall over today’s report and threatening to throw the recovery into reverse as we enter the new year. 

Payroll Growth Slows in December after Sluggish November

Employers added 199,000 jobs in December 2021, even slower than the 249,000 jobs added in November and well below expectations. That brings the annual total to 6.4 million jobs added during 2021, the highest on record. Payroll growth in November was revised upward only modestly to 249,000 from 210,000. Overall, job gains have been muted since July’s print of over 1 million jobs added as the Delta and Omicron variants have suppressed job growth.

Unemployment Falls to 3.9 Percent

The unemployment rate dropped to 3.9 percent in December, down from 4.2 percent in November. The Black unemployment rate increased to 7.1 percent from 6.5 percent, partially reversing the large improvement from November. If job openings from November held steady into December, there would be 4.2 million more job openings than unemployed workers, highlighting that labor shortages are here to stay as 2021 ends.

COVID-Sensitive Services Sectors Lead Slowdown

A continued slowdown in leisure & hospitality (+53,000 jobs added) muted job gains in December due to the worsening pandemic. Strong holiday demand was not enough to drive job gains in retail (-2,100), though transportation & warehousing (+18,700) continued to add jobs. These industries will be important to watch in January to see if employers facing labor shortages decide to lay off seasonal workers or convert them into full-time workers.

What to Expect in 2022

Labor shortages were the surprise theme of 2021, but despite the difficulty in hiring employers in 2021, employers still added 6.4 million jobs over the year. However, it will likely continue to be difficult to hire in 2022. Today’s report highlights that the pandemic remains a barrier to many Americans who would otherwise be available to work. And the novel Omicron variant emphasizes that the pandemic is unpredictable and will not disappear overnight.

In the short-term, the Omicron variant is likely to dampen economic activity. Just as we’ve seen during past waves, the worsening pandemic may dissuade consumers from spending and workers from returning. On top of that, even if Omicron is less severe, the high levels of transmission we’re seeing risk disrupting workplaces by interrupting childcare and pushing more employees to quarantine. Once again, the pandemic is back in the driver’s seat.

More Insights

The job market added just 199,000 jobs in December. November job gains were revised up only modestly to 249,000 from 210,000, despite hopes that revisions would be more pronounced. The worsening pandemic has kept job gains muted since the summer.

Even though the discussion in 2021 has focused on how hard it is to hire, employers rehired or newly hired a record 6.4 million workers to payrolls in 2021. Jobs growth is still possible even in a tough hiring environment.

We’re now 3.6 million jobs short of pre-pandemic levels. We’d need to add around 300,000 jobs per month to return to those levels by the end of 2022, compared to the 537,000 per month average in 2021.

The slowdown was primarily driven by leisure & hospitality which added just 53,000 jobs. As the pandemic worsens, COVID-sensitive sectors like leisure & hospitality, retail, healthcare and education tend to slow.

Leisure & hospitality is particularly important because it accounts for over a third of the remaining shortfall in payrolls vs. pre-pandemic levels. Education and health care each account for a little less than one-fifth of the remaining shortfall.

Annual wage growth in leisure & hospitality for production & nonsupervisory workers hit a new high in December (+15.8 percent). This is in part due to the weak wage growth we were seeing last December, but is still a reflection of how much wages have risen over 2021.

The unemployment rate fell to 3.9 percent, breaching the 4 percent threshold. The fact that unemployment is nearing pre-pandemic levels while employment is still well short really highlights how many workers have fallen out of the labor force.

The Black unemployment rate jumped to 7.1 percent in Dec from 6.5 percent in Nov. The Black unemployment rate is now more than double the white unemployment rate as the gap persists during the ongoing recovery.

Retail lost 2,100 jobs in December on a seasonally adjusted basis, but this might just be a new seasonal pattern. Non-seasonally adjusted retail hiring was much stronger than usual in October but weaker in November and December. Employers may have pulled forward hiring amidst labor shortage concerns.

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