Opinion | A new jobs report is strong, but why is labor participation still low?

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For the most part, the jobs numbers released on Friday were strong: stronger-than-expected job growth, near-record low unemployment, hiring in most major job sectors economy. None of these measures indicate an economy in recession, despite widespread perceptions among voters that they are already in one.

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One troubling puzzle remains, however. Where did all the workers go?

Labor force participation — the share of adults working or actively looking for work — fell early in the pandemic. Which was not surprising in the circumstances. Many businesses were closed as customers stayed at home; many Americans who were worried about exposure to disease decided to avoid offices or other workplaces for a while; and childcare was unusually short, taking parents out of the workforce.

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The federal government also provided a lot of financial support so that Americans could continue to pay their bills even if they were not employed, through stimulus checks, more generous unemployment benefits than usual and other programs.

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But since then, the economy has basically reopened. Consumer spending, and overall economic output, are well above pre-covid levels. Federal stimulus checks stopped, and unemployment benefits returned to their standard levels of generosity. Jobs are plentiful, with millions more vacancies than there are unemployed workers to fill them.

And yet labor force participation remains depressed, compared to pre-pandemic days. In fact, the share of people in the labor force has been decreasing in recent months. So is the share of the working age population that is actually in employment:

This is not a sign of a healthy labor market. Not good for inflationary pressures, either, as labor shortages are contributing to supply chain issues and rising prices. In remarks earlier this week, Federal Reserve Chairman Jerome H. Powell noted that there are about 3.5 million fewer workers today than the U.S. Budget Office’s pre-pandemic forecast had predicted. Congress on workforce growth.

Powell offered a few possible factors for this continued deficit, including higher-than-expected withdrawal levels.

Retirements have indeed exceeded the numbers that would have been expected from population aging alone. This may reflect both ongoing covid risks (since the elderly are more vulnerable) and a large appreciation in asset values. House prices and stock markets have declined recently, but are still up compared to February 2020, providing a decent nest egg for many retirees. Even if you only look at the so-called prime working age population (those aged between 25 and 54, so not yet the traditional retirement age), labor force participation is still low.

Recently, it has been going down as well.

The question is why. One possible explanation is that the pandemic is still affecting the workforce; many Americans have died, and others who were previously infected may be struggling with “long covid.” Childcare is also still scarce. The industry employs 8 percent fewer people today than it did in February 2020. Other parts of the care economy, such as nursing homes, are also struggling to find workers, which in turn can make it more difficult to -people in other industries to stay employed.

Levels of legal immigration — including immigrants authorized to work — were also very depressed in 2020 and 2021, as Powell noted. Visa issuance (for people who have just received green cards, as well as those in other work-eligible categories) has picked up again this year, according to an analysis by the Migration Policy Institute. But the recent increase is still not enough to make up for the cumulative deficit of “missing” immigrants who never arrived during 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 temporary federal safety net programs related to the pandemic have largely ceased, with some limited exceptions. However, household savings are still elevated, thanks in part to the federal payments that Americans received and put away in 2020-2021. This could theoretically make it a little easier for some people to stay out of the workforce a little longer than they might otherwise, although the evidence on this issue remains mixed.

Also note that lots of states have recently also reduced parts of their budget surpluses back to taxpayers (ie, cut residents new checks). This may also have helped consumers to increase their spending even if they did not work more hours (or at all).

Finally, there has been much speculation about whether the pandemic may have changed Americans’ attitudes towards work: how much they value time with their families, what kind of working conditions they are willing to put up with, and how many hours (if any) they really wanted to keep turning the clock. Americans in many areas report high levels of burnout, too.

So, maybe people are staying out of the labor market because they have re-evaluated their priorities.

But on the other hand, maybe they were more comfortable changing their priorities — that is, they felt they could take a break from the grind, without suffering great hardship — because some temporary economic conditions suddenly made lifestyles less labor intensive. possible. Remember: Their savings cushion was unusually large, by historical standards. Job openings remain plentiful, perhaps assuring people that they can return to work quickly and easily whenever they want — so there’s no rush.

If there is a recession, how will there be be next year, both sources of comfort may disappear. Consumers have been drawing down their accumulated savings, with the monthly savings rate in October hitting the second lowest level on record since 1959. And there may not always be a backup job available, if families need more income in a pinch.

All of this means that we could see many workers who have been sitting on the sidelines re-evaluating their options soon.

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