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Friday, September 10, 2021
With jobs plentiful, low labor participation is the missing link
Another day, another data point showing how the job market is almost absurdly competitive in the face of a world-bestriding pandemic.
Coming on the heels of Wednesday’s surprisingly hot JOLTS report, Thursday’s jobless claims defied both spiking COVID-19 infections, and the doom and gloom that’s enveloped markets ever since August payrolls fell flat.
Initial claims for unemployment hit a new pandemic-era low at 310,000 — better than expected — with the 4-week moving average tumbling by 17,000 to 340,000. The closely watched unemployment data gives us an opportunity to reflect on two key aspects of the current expansion.
First, the labor market is a lot more resilient than many economists gave it credit for being. And second, there are millions of workers still displaced for several reasons — and a chunk of them are unlikely to return.
One stark reminder provided by last week’s payrolls data is that the labor force participation rate (a measure of how many able-bodied, working age people are actively working) is lodged at 61.7%. That is only 1.5 points higher than its April 2020 nadir, which at the time was its lowest level in decades.
In a research note circulated on Thursday, Baird Private Wealth Management analyst Ross Mayfield ticked off a litany of reasons pushing down labor force participation, several of them connected to the pandemic: generous unemployment, lack of child care and/or in-person schooling.
Along those lines, Axios’ Sam Ro (a former Morning Brief scribe) on Thursday highlighted U.S. Census Bureau data that showed over 3 million workers confessed to not working, in part because they feared contracting or spreading COVID-19. That’s one big reason why employers are finding it difficult to fill open positions, and why job creation is starting to falter.
The good news is that workers on the job have become more efficient during COVID-19, unleashing what Baird’s Mayfield called a “productivity mini-boom.” And the current worker shortage means employees no longer face a Hobson's Choice of lower wages or harder work.
Indeed, Peter McCrory at JPMorgan Chase wrote on Thursday that while labor supply is still “constrained by a variety of pandemic-related factors,” the tight job market has “contributed to somewhat-faster-than-usual earnings growth since April 2021."
He added: "This pattern of elevated labor market tightness and faster wage growth since spring of this year is perhaps most striking in the leisure and hospitality sector,” which has been the hardest-hit by COVID-19.
Yet, even as the recovery has been one of the fastest on record, the comparatively low labor participation rate signals something Mayfield put in sobering terms, and underscores how far the job market has to go.
“Over 1.5 years into the pandemic, the employment crisis remains more severe than the recessions of 1974, 1981, 1990 or 2001 were at their worst,” Mayfield wrote.
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