Brookings Institution senior fellow in Economic Studies and director of The Hamilton Project, Wendy Edelberg, joins Yahoo Finance to discuss why we see slower than expected employment gains during the recovery and the most crucial factor for economic recovery.

Video Transcript

- Let's bring in Wendy Edelberg. She's Brookings Institution's senior fellow in economic studies. She's director of the Hamilton Project. And you have written about this and thought about this, Wendy, as well.

I want to start with the mother component of the equation. That is one of the explanations that's been put forward is that still we're not seeing schools back full time, and so women are staying home, maybe not going back into the workforce because they're still looking after their kids. I wonder how much of this whole phenomenon you ascribe to that and whether you think we're gonna see a change in the fall.

WENDY EDELBERG: Yeah, so there are a number of factors that are acutely affecting certain parts of the population, whether those are acute health risks or, as you just mentioned, child care issues. So certainly, we see a lot of evidence that for mothers of elementary school age children, particularly in states that have seen a lot of school closures, they are feeling particularly hard-hit by those school closures.

And we've seen big hits to their labor force participation rates and how-- you know, their propensity to be employed as a result of those child care issues in those states. But this is a relatively narrow issue acutely hitting this population. There's a lot of evidence suggesting that this is not widespread enough of an issue to be having a big effect in the aggregate.

- Wendy, you've written recently about this being a chaotic recovery. Besides what you just talked about, what else is causing that chaos?

WENDY EDELBERG: What we're seeing is a whole lot of churn. I mean, I think there are three main takeaways from what we saw in this morning's employment report. First, we saw some good news. For sure, it was quite welcome. But as you say, there's a lot of churn, and that's gonna take a long time to get through.

So let's talk about the good news. We came into this employment report with a shortfall of over 10 million jobs relative to where we should be. And this morning, we saw that the net increase in employment in May was 600,000. That's gonna put a dent in that shortfall, which is good.

But underlying that number is a lot of chaos. What we saw is that the number of people who left employment in May was 400,000 higher than it would normally be if the labor market were acting as it usually does. And the preceding month, it was 500,000. Those are big numbers, and I think we have a lot of evidence that they belie a fair amount of chaos in the labor market right now. And it's gonna take some time to work itself out.

- And, you know, Wendy, speaking of narrow issues that have certainly played a big role in at least the discussion of the labor market-- that would be enhanced unemployment benefits, and those are going away in some states. They'll go away for all states in about three or four months. What role do you think that is playing, perhaps, in keeping people out of the labor force? And you kind of come down on it's being overplayed as an issue or underplayed as kind of a deterrent here.

WENDY EDELBERG: So I'm not sure if it's being over- or underplayed, but I certainly know it's a factor. So one of the impetuses for expanding unemployment insurance benefits was to make sure that people could prioritize their health and take the time to find good labor market matches. And I absolutely think that the extended benefits are having that effect. That means they are going to, to some degree, slow down the transitions that we are seeing. We're going to see that people take more time to find-- excuse me-- to find good matches, good productive matches, that boost productivity over the longer term.

On the flip side, the longer people stay out of employment, the more their skills are going to deteriorate and the more we worry about their overall attachment to the labor force going down. So I absolutely think that the extended benefits are having effects right now. They're having both positive and negative effects. They are going to slow things down, but I think, on net, lead us to have a more productive economy in the long term.

- And Wendy, you guys are a policy organization-- policy-suggesting organization. So I wonder if, very quickly, you could tell us what you think the single most important policy is when it comes to the economic recovery and making sure that it keeps going.

WENDY EDELBERG: Oh, my goodness. Well, of course, it's keeping the vaccine under control-- I mean keeping the pandemic under control and making sure that we get the vaccine distributed. We see a correlation between what states have strong employment gains and where we see higher vaccination rates. So we have a lot of evidence that if we can get herd immunity, if we can increase vaccination rates, we will improve our labor market recovery and speed it along. That just has to be the number-one priority.

- Makes sense. Wendy, thanks for being here. Wendy Edelberg, Brookings Institution senior fellow in economic studies and also director of the Hamilton Project. Appreciate it.