Labor force participation – the share of adults working or actively seeking work – fell early in the pandemic. Which was not surprising under the circumstances. Many businesses closed as customers stayed home; many Americans who feared exposure to the disease decided to avoid offices or other workplaces for some time; and childcare services were exceptionally scarce, keeping parents out of the labor market.
The federal government also provided significant financial support to allow Americans to continue paying their bills even if they were not employed, through stimulus checks, more generous unemployment benefits than usual and other programs.
But since then, the economy has practically reopened. Consumer spending and overall economic output are well above pre-crisis levels. Federal stimulus checks have stopped and unemployment benefits have returned to their standard generosity levels. Job vacancies are plentiful, with millions more vacancies than there are unemployed to fill them.
And yet labor force participation still remains depressed compared to pre-pandemic days. In fact, the share of people in the labor force has been declining in recent months. The same is true for the share of the working-age population that is actually employed:
This is not a sign of a healthy labor market. It’s also not ideal for inflationary pressures, as labor shortages have contributed to supply chain issues and price growth. In remarks earlier this week, Federal Reserve Chairman Jerome H. Powell noted that there are about 3.5 million fewer workers today than the pre-pandemic labor growth forecast. of the Congressional Budget Office.
Powell offered a few possible factors for this continued shortfall, including higher-than-expected pension levels.
Retirements have indeed exceeded the numbers that one would have expected from the aging of the population alone. This could reflect both lingering covid risks (as older people are more vulnerable) and huge appreciation in asset values. Home prices and stock markets have fallen recently, but are still up from February 2020, providing a decent nest egg for many retirees. Even if you only look at the so-called working-age population (those aged 25-54, so not yet the traditional retirement age), labor market participation is still falling.
Recently, it has also dropped.
The question is why. One possible explanation is that the pandemic is still affecting the workforce; many Americans have died, and others previously infected may be struggling with “long covid”. Childcare services also remain scarce. The industry employs 8% fewer people today than in February 2020. Other sectors of the care economy, such as nursing homes, are also struggling to find workers, which can make more difficult for people in other sectors to stay employed.
Levels of legal immigration — including immigrants allowed to work — were also severely depressed in 2020 and 2021, as Powell noted. Visa issuances (for people newly issued green cards, as well as those in other work-eligible categories) have rebounded this year, according to analysis by the Migration Policy Institute. But the recent increase is still not enough to offset the cumulative deficit of “missing” immigrants who never arrived in the previous two years.
Foreign-born men are also much more likely to participate in the labor force than their native-born counterparts.
It is true that the temporary federal pandemic-related safety net programs have largely ceased, with a few exceptions. Household savings remain high, however, thanks in part to the federal payments Americans received and accrued in 2020-21. This could theoretically allow some people to be out of the labor force a bit longer than they otherwise would, although the evidence on this remains mixed.
Also note that many states have also recently refunded a portion of their budget surpluses to taxpayers (i.e. by cutting residents’ new checks). It could also have helped consumers increase their spending even if they weren’t working more hours (or at all).
Finally, there’s been a lot of speculation about whether the pandemic might have changed Americans’ attitudes toward work: how much they value time spent with family, what kinds of working conditions they’re in. willing to accept and how many hours (if any) they really wanted to keep punching the clock. Americans in many fields also report high levels of burnout.
So maybe people are missing out on the job market because they’ve reassessed their priorities.
But on the other hand, they may have been more comfortable changing their priorities – that is, they felt they could take a break from routine, without suffering serious hardship – because some temporary economic conditions suddenly made lifestyles less labour-intensive. possible. Remember: their savings cushion has been exceptionally large, by historical standards. Job vacancies remain plentiful, perhaps assuring people that they can return to work quickly and easily whenever they want – so no rush.
If there is a recession, as it could well be next year, these two sources of comfort could disappear. Consumers dipped into their accumulated savings, with the monthly savings rate hitting its second-lowest level since 1959 in October. And there may not always be a fallback job available, if families need more income in a pinch.
All that to say, we could see a lot of workers who sat on the sidelines reassessing their choices soon.