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 positive: job growth was stronger than expected, unemployment near record-lows, hiring in all major sectors of the economy. None of these measures indicate a recession, despite the widespread perception among voters that we are already together.

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

Labor force participation — the share of older people either working or actively looking for work — fell early in the pandemic. That was not surprising under the circumstances. Many businesses are closed as customers stay home; many Americans worried about getting sick decided to avoid offices or other workplaces for a while; and childcare was unusually scarce, putting parents out of work.

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The federal government also provided more financial support for Americans to continue paying their debts even if they were unemployed, through stimulus, more than usual unemployment benefits and other programs.

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But since then, the economy has reopened. Consumer spending, and overall economic output, are above pre-covid levels. Federal stimulus checks have stopped, and unemployment benefits have returned to normal generous levels. Job opportunities are plentiful, and the millions of job vacancies are more than there are unemployed workers to fill.

Yet labor participation remains depressed, compared to pre-pandemic days. In fact, the share of people at work has decreased in recent months. So is the share of working-age people in the workforce:

This is not a sign of a healthy labor market. It’s not good for inflationary pressures, either, as labor shortages have contributed to supply and inflation issues. In remarks earlier this week, Federal Reserve Chairman Jerome H. Powell noted that there are about 3.5 million fewer workers today than the Congressional Budget Office’s previous estimate of the pandemic’s workforce growth.

Powell offered a few possible reasons for the ongoing deficit, including higher-than-expected pension levels.

Retirement has actually exceeded the numbers expected only for the aging population. This could indicate both a continued covid risk (since the elderly are vulnerable) and a large appreciation in asset prices. Home prices and the stock market have fallen recently, but are still rising in February 2020, providing a nest egg for many retirees. Even if you look only at people of so-called prime-working age (those aged 25 to 54, so not yet at normal retirement age), labor force participation is still low.

Recently, it has fallen, too.

The question is why. Another possible explanation is that the epidemic is still affecting workers; many Americans are dying, and some who were previously infected may be suffering from “long-term covid.” Childcare is also often scarce. The industry employs 8 percent fewer people today than it did in February 2020. Other areas of the care economy, such as nursing homes, are also struggling to find workers, which could make it harder for people in other industries to stay employed.

Levels of legal immigration — including immigrants authorized to work — will be severely depressed in 2020 and 2021, as Powell noted. Visa issuances (to new green card holders, as well as those in other eligible work categories) have increased again this year, according to an analysis from the Immigration Policy Center. But the latest increase is still not enough to make up for the growing deficit of “missing” immigrants who did not arrive in the past two years.

Foreign-born men are more likely to participate in the workforce than their native-born counterparts.

It is true that for a while, epidemic-related programs have largely stopped, with some limited exceptions. Housing savings remain high, however, thanks in part to the federal payments Americans received and were fired in 2020-2021. That could theoretically make it easier for some people to stay out of the workforce longer than they would otherwise, though the evidence on this remains mixed.

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Note also that many states have also recently transferred portions of their budget surpluses back to taxpayers (ie, cutting residents new checks). This would help consumers increase their spending even if they didn’t work more hours (or at all).

Finally, there has been much speculation about whether the pandemic would have changed Americans’ attitudes toward work: how much they value time with their families, what working conditions they are willing to put up with, and how many hours (if any. ) they really want to keep punching the clock. Americans in many fields report high levels of fatigue, too.

So, maybe people are staying out of the labor market because they’ve reassessed their priorities.

But on the other hand, perhaps they have become more comfortable in changing their priorities – that is, they feel like they can take a break, without much difficulty – because some temporary economic conditions suddenly make for a less busy working life. possible. Remember: Their nursing cushion has been unusually large, by historical standards. Job openings are always 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, as is likely Next year, both of those sources of comfort may disappear. Consumers have been reducing their savings, with the monthly savings rate in October reaching the second lowest level on record since 1959. And there may not always be back-to-back jobs available, if families need extra income in the pink.

All of which means we could see many of the workers who have been sitting on the sidelines exploring their options soon.

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