FOR NEW truckers in Portland, Oregon, a $30,000 signing bonus. For new recruits to the army, a bonus of $50,000. Route closures for public buses from Texas to North Dakota. No more automatic daily housekeeping at most Hilton and Marriott hotels. Offers from Amazon and Walmart to cover their employees’ tuition.
Enjoy more audio and podcasts on iOS Where Android.
The common thread running through all of these snapshots – a small sampling of these stories – is a remarkable imbalance between the need for workers and their availability in America today. The economy has surged beyond its pre-covid-19 level GDP. Companies in nearly every industry, from hospitality to finance, are desperate to hire people to keep up with demand. But the number of people willing to work for them is dwindling: America has about 3 million fewer workers today than on the eve of the pandemic, a 2% contraction in the labor force.
This is great news for job seekers. It is easy to find work. Wage growth (at least in cash terms) is strong, especially for low-income earners. For America as a whole, however, it’s a bigger concern. If the population is close to full employment, which means that almost anyone who wants a job can find one, then economic growth is already reaching its upper limits. An overheated labor market would fuel the inflation that is already spreading through the economy, making it all the more difficult to stabilize prices.
For much of the past two years, a fair assumption was that as the pandemic subsided, people would return to work in droves. That seems less plausible today. Some of the decline in the number of workers appears to be permanent. This, in turn, could limit America’s economic potential, as a shrinking labor pool will dampen growth, said Marianne Wanamaker, an economist at the University of Tennessee. “I think we switched to another plane here, unfortunately,” she said.
Those who have left the labor market can be divided into three broad groups: prime-age people who, for various reasons, would prefer to be at home; seniors who were heading towards retirement and accelerated their departures; and immigrants, whose flow through legal channels has dried up.
It’s easier to be optimistic about prime-age workers. Every month, more and more members of this group, that is to say people between the ages of 25 and 54, return to the labor market. At the current rate, their labor force participation rate will return to the pre-pandemic level of 83% by the end of this year.
The resumption of face-to-face schooling since last summer has freed up parents, which is particularly important for women who carried out additional childcare duties. (The Omicron wave, which has led some schools to return to distance learning, is a setback, but a temporary one.) The expiration of generous unemployment benefits, paid at the height of the pandemic, has also been on the sidelines. As more Americans dip into their pandemic savings, the pressure to find work will only increase.
Those who retire early may prove more difficult to move. If older Americans, ages 55 and older, had continued to work at their pre-pandemic levels, the country would have nearly 2 million more workers today.
One factor behind their reluctance may be soaring house and stock prices, according to economists at the Federal Reserve’s St Louis branch. Those who are about to retire and have significant savings may now feel less need to punch the clock. There may also be a more troubling explanation. Older people have been hit harder by covid, and poor health, or the threat of it, could deter them from working, says Betsey Stevenson, an economist at the University of Michigan. However, the longer older people remain out of work, the more difficult it will be for them to return to their jobs.
A drop in the number of immigrants makes this worse. Despite all the attention to illegal border crossings from Mexico, the bigger story is the lack of foreigners in America. According to Giovanni Peri and Reem Zaiour of the University of California, Davis, there are about 2 million fewer working-age immigrants than there would have been if pre-covid trends had continued. About half would probably have had college degrees, so their absence hurts high-skill industries as much as low-skill industries.
An end to the pandemic would reduce the backlog in the US visa system. But shifting political winds – a reluctance to admit as many immigrants as in the past – may limit inflows. An industry with a 10% higher reliance on foreign workers than another industry in 2019 typically had a 3% higher job vacancy rate in 2021, Mr. Peri and Ms. Zaiour calculate.
One of the main reasons the Fed had been reluctant to raise interest rates, despite soaring inflation, was that it believed the economy was far from full employment. But with labor market participation remaining stubbornly low, it has changed in tone. Fed Chairman Jerome Powell said last week that America’s best hope for increasing the labor force over time would be to have a long and steady recovery. For this, it needs price stability; hence the imperative to control inflation, which reached 7% in December, its highest in four decades. Most economists believe the Fed will raise rates for the first time since the pandemic in March, with at least two more rate hikes this year.
The pandemic is adding to uncertainties due to its impact on the workplace. When restaurants cut staff, Amazon and others swept them away. A commonly expressed hope is that as consumer demand shifts back to services, away from goods, price pressures will ease. It is however far from certain. “Without an increase in labor market participation to meet demand, inflation in the second half of 2022 could be fueled by rising prices for services,” warns Ms Stevenson.
Still, there’s a good chance that the labor market will be a little calmer by the end of the year, thanks to a combination of slower economic growth, a fading pandemic and more prime-age Americans returning to work. But the current extreme tension will have offered a glimpse of the future as aging depletes the pool of potential workers. Ms Wanamaker describes the prospect as a “perpetual labor shortage”. Getting by with less help will be the new normal. ■
For exclusive insights and reading recommendations from our correspondents in America, sign up for Checks and Balance, our weekly newsletter.
This article appeared in the United States section of the print edition under the headline “Help Wanted, Now and in the Future”