Fed’s Kashkari warns Delta variant fears are keeping millions from restarting work and could slow the labor market’s recovery

FILE PHOTO: Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York February 17, 2016. REUTERS/Brendan McDermid
  • Concerns about the highly contagious COVID-19 Delta variant are holding millions back from returning to work, Neel Kashkari said Sunday.
  • That could drag on the US labor market recovery, the Minneapolis Fed president told CBS.
  • The sooner vaccinations bring Delta under control, the better off the economy will be, the Fed policymaker said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

As many as 9 million Americans are holding back from returning to work as the highly contagious Delta variant spreads, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday.

That reluctance could slow the US labor market’s recovery, the Fed official told CBS’s chief political analyst John Dickerson on “Face the Nation.”

“We believe that they’re out of work because they’ve been nervous about COVID, because of childcare issues, because of these enhanced unemployment benefits,” Kashkari said.

The Delta variant is the most common source of new cases in the US, with only two states at low risk of infections from it – Massachusetts and Vermont. Over the past two weeks, COVID-19 cases have increased by 148%, hospitalizations by 73%, and deaths by 13% in the US, according to a New York Times database.

The Federal Reserve policymaker said he had hoped the job market would revive in the fall with millions going back to work, and he still expects that to be the case.

“But if people are nervous about the Delta variant, that could slow some of that labor market recovery and therefore be a drag on our economic recovery,” he said. “So the sooner we can get people vaccinated, the sooner we can get Delta under control, the better off our economy is going to be.”

Kashkari is one of the more dovish members of the Fed’s Federal Open Market Committee, which manages the nation’s money supply by setting monetary policy.

The labor market is one of the most important measures of slack in the US economy. When businesses run out of people to hire, wages rise, and that risks setting off an inflationary spiral.

Vaccine distribution and the reopening of the US economy have pushed jobless claims to a pandemic-era low of 400,000 as people take up roles. But nearly 10 million people remained unemployed by the end of June this year.

Over the past few months, rising inflation has awakened fears that the Fed would have to rein it in by raising rates aggressively.

Kashkari, like most Fed officials, believes the current high level of inflation is transitory. They believe it is being driven by large price increases for a few industries – like autos, travel, and transport – that are coming back from pandemic-related inactivity, not the economy as a whole.

If the COVID-19 pandemic had not occurred, the US economy would likely have kept adding jobs in 2020, Kashkari said.

“The last recovery took 10 years to put everybody back to work,” he said, possibly in reference to the aftermath of the Great Recession. “We cannot have another 10-year recovery.”

Read More: Morgan Stanley says these 10 stocks are the firm’s top selections right now in a group of picks that’s doubled the S&P 500 over the last 3 years

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‘Distinctively Black names’ still get fewer callbacks for job applications

business meeting
A study found that applicants with Black names had a 2.1% lesser chance of getting contacted.

  • A recent study found that applicants with Black names have 2.1% fewer chance of getting contacted.
  • The study submitted 83,000 entry-level applications to 108 fortune 500 companies.
  • Black Americans are severely underrepresented in higher-paying corporate jobs.
  • See more stories on Insider’s business page.

A recent study conducted by researchers at the University of Chicago and the University of California Berkeley found that people with “distinctively Black names” have a lesser chance of being contacted for an interview compared to employees with white names.

Researchers submitted more than 83,000 entry-level job applications to 108 fortune 500 companies in the US. What they found, was that applicants with Black names had a 2.1% less chance of getting contacted.

The National Bureau of Economic Research published a working paper on the study, noting that 7% of all jobs included in the experiment discriminated against Black names, but that number jumped to 20% when looking at the 23 companies the researchers “reliably label as engaged in racial discrimination.”

The companies that ranked in the top fifth of the study for racial discrimination were responsible for nearly half of the incidents of “lost contacts to Black applicants.”

In recent years a handful of Fortune 500 companies have been hit with lawsuits for breaking civil rights laws. Google, Target, Coca-Cola, Fox News, and more have all paid out millions of dollars in settlements over accusations of discrimination against employees, and companies including Amazon, Facebook, Morgan Stanley, and McDonalds have all been accused of racially discriminatory behavior.

Black Americans are severely underrepresented in higher-paying corporate jobs, as the Bureau of Labor Statistics found in a 2018 study. Similarly, white Americans outrank Hispanics in management, professional, and related occupations, the highest-paying major occupational category. Asian Americans were the only ethnic group with a higher share of jobs in that category than white workers.

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Businesses are struggling to find workers and experts are raising the alarm over a ‘labor shortage.’ But there are clear reasons to think the job crunch is only a short-term problem.

mcdonald's advertising help wanted labor shortage $15 an hour
The sign at the McDonald’s restaurant on Penn Ave in Sinking Spring, PA April 8, 2021 with a message on a board below it that reads “Work Here $15 And Free Meals”.

  • The US economy appears to have a labor shortage on its hands as businesses are having trouble attracting workers.
  • But there are reasons – improving vaccination rates, childcare reopenings, the end of boosted unemployment – to believe the job market imbalance won’t last long.
  • Given the temporary nature of the issue, the Federal Reserve shouldn’t overreact.
  • This is an opinion column. The thoughts expressed are those of the author.
  • See more stories on Insider’s business page.

Until recently, enthusiasm was building in the economic recovery. But a series of dark clouds have come together all at once to darken the outlook for the US economy and they all point to one thing: inflation.

The most hotly debated topic is the question of the labor market. The weak April jobs report and reports from firms citing difficulties finding workers and mounting wage pressure have people worried about labor supply shortages. In turn, some economists are swinging from the optimism of accelerating demand to the pessimism of binding supply. As I will argue, first, the fretting over the job market and labor shortage will prove to be short-lived and second, the Federal Reserve should not change course to address the concerns – interest rates are too blunt a tool.

Yes, there is a labor shortage but it will pass

I believe there is enough evidence to conclude that there is indeed a shortage of workers for companies to hire. Since last summer, the percentage of prime-age workers – people aged 25 to 54 – in the labor force (employed or actively looking for employment) has not budged and is still stuck 1.7 percentage points below its pre-pandemic peak. At the same time, total job openings have surged by just over two million, indicating strong demand from businesses for labor. There is plenty of anecdotal evidence of firms boosting pay: McDonald’s, Chipotle and Amazon among them.

These are 2019 like headlines in 2021. The only difference is that the unemployment rate was below 4% then and it is above 6% now. This would indicate a temporary increase in NAIRU, which is not surprising in the early stages of recovery. There was a similar phenomenon following the financial crisis. The initial recovery always involves a “clearing out of the brush” so to speak – the reallocation of resources often results in short-run labor market frictions.

But these frictions will be just that, short. In the coming quarters, there are good reasons to expect labor supply constraints to ease:

  1. There is less fear of COVID in the general population. Believe it or not, we saw more people with a job, but not at work due to illness in April than we did on average last summer. As cases continue to decline, the spread of COVID is less likely to be a reason keeping people from attaching to jobs in the future. As Fed Governor Lael Brainard recently noted, the vaccinated share of the population increased notably from the survey week of the April payroll figures.
  2. Schools are likely to return to full in-person instruction in the fall. Now, just half of school districts are fully in-person. This might be impacting the attachment of parents to the workforce, especially mothers. The participation rates for women aged 25 to 44 has dropped a bit more than men. There’s some debate about how much of an impact school closures are having but I’d be surprised if the return of a normal routine did not bring with it some recovery in labor supply.
  3. The jobless benefits are coming to an end. This is the most contentious point, but there is some reason to believe these payments, critical safety nets during the worst of the pandemic, have now kept workers from attaching to jobs. After all, one reason for these programs was to bridge people over the pandemic by staying away from working. At any rate, there area slew of states endingthe boosted unemployment benefits early (covering about one-third of the labor force) and the program itself is over the summer. So, to the extent this is a big constraint, it will be fading in the months ahead.

What to do about it? Stand pat.

I think this easing of labor supply constraints has a few important implications, particularly for the Fed.

Many investors and economists are anxiously awaiting speeches from Fed officials, especially Chairman Jerome Powell, about whether these constraints and wage increases could lead to a hike in interest rates. These breathless observers should exhale. While there is some evidence that a tapering of asset purchases is coming into focus (“thinking about thinking”), rate hikes remain in the distance.

More importantly, what exactly is the Fed supposed to do about labor constraints? Lift rates and cool demand for labor? In the same way that much of the rise in consumer prices has been concentrated in items related to supply chain disruptions or the economic reopening, the Fed will likely view the recent supply side pressures in the labor market as temporary. Thus, the Fed’s best strategy is to do nothing.

In short, I think the months ahead will alleviate some of the supply pressures in the labor market. While the increased unemployment benefits are the most contentious, the fact that COVID is going away should bring many people back into the workforce. This positive labor market supply shock will give the Fed some breathing room to bide their time.

Of course, no outlook is without risks. In this case, there is some chance that the pandemic has accelerated the retirements for many. The participation rate for those aged 55 and over has declined 2 percentage points against pre-pandemic levels, a bit more than prime-age workers. If we assume that the participation rate for those aged 55 and over stays flat, the participation rate for those aged 16 to 24 would need to rise by roughly 7 points from its current level to push the total participation rate back to its pre-pandemic level – in other words, by quite a lot.

But, for now, I see more evidence that the labor supply problem is temporary than permanent. The next couple of quarters should be better.

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How COVID-19’s effect on the job market could cause widespread health problems

Unemployment benefits line
Out-of-work Kentucky residents wait outside the Kentucky Career Center for help with their unemployment claims.

  • COVID-19 caused a surge in unemployment, and job loss can lead to physical and mental health issues.
  • Increased use of alcohol or drugs, eating and sleeping poorly, or exercising less are other risks.
  • Support for people out of work due to COVID-19 will be necessary to mitigate future health issues.
  • See more stories on Insider’s business page.

Being out of work isn’t bad just for your finances: It’s bad for your health. Losing a job can cause depression, anxiety and other mental health problems. Research also consistently shows that job loss and unemployment – even just for a few months – are associated with poorer physical health as well, including increased risks for cardiovascular disease, hospitalization and death. These risks can endure for years or even decades after a person returns to work.

As researchers who study the health effects of job loss and unemployment, we see many reasons to worry that the next wave of health problems linked to COVID-19 will not come directly from the virus itself, or the strain it places on health systems, but from its effect on the labor market.

During the first six months of the COVID-19 pandemic, 25% of US adults said they or someone in their household lost their job because of the pandemic. Among those who said they lost a job, half reported they were still unemployed six months later. Racial and ethnic minorities have been hit hardest by pandemic-driven job losses and deaths. These communities already face long-standing structural inequities in living and working conditions that affect their job prospects and may shape their financial recovery.

Read more: Former Disney employees reveal how they’ve turned their unique talents into sustainable businesses – with the help of a Facebook group

The health impacts of job loss

It’s not hard to see why losing a job, followed by a period of unemployment, can be bad for a person’s health. The initial months following a job loss can reduce social support by straining people’s finances and psychological well-being and limiting their social interactions. People who lose their health insurance along with their job may not seek medical attention when illness arises. The stresses caused by losing a job can also lead people to increase the use of alcohol or drugs, eat poorly, exercise less or develop bad sleep patterns.

These risks persist even if someone receives unemployment benefits or gets another job relatively quickly. Some research shows a few months of unemployment may be associated with worse long-term health and well-being. One study found that in the year after the participants lost their jobs, death rates among them were as much as two times higher regardless of whether and when they got a new one, and remained 10% to 15% higher than expected for the next 20 years. If this rate of increased risk continued indefinitely, the authors noted, losing a job at age 40 could reduce life expectancy by one to one and a half years.

Other research has associated job loss with a higher risk of conditions including hypertension and arthritis, and a twofold higher risk of heart attack and stroke. And that’s not because people in poor health are more likely to lose their jobs. Our 2007 analysis showed that even after removing the influence of baseline health and social background, people who lost their jobs were still more likely to report poor health.

Why pandemic-driven job loss may be the next health crisis

While some of the data on which we base our concern come from other economic recessions and downturns, such as the Great Recession from 2007 to 2009, we expect that there could be even worse outcomes in the wake of COVID-19. The peak unemployment rate during the Great Recession was 10%, while the peak unemployment rate in 2020 was almost 15%. Economic recovery is more precarious when pandemic restrictions are still in place, and some business operations have changed permanently, making it harder for some laid-off workers to regain their old jobs.

Moreover, many of those who became seriously ill with COVID-19 are experiencing slow recoveries. They may not be able to work at their earlier capacities for some time. Other adults may need to take on new caregiver responsibilities because kin have remained ill, or died and left behind others who need care.

What can governments do?

Already, preliminary analyses are emerging about the potential health effects of COVID-19-related unemployment, particularly among vulnerable populations. In a recent New Zealand study, the researchers estimate that pandemic-related job loss could cause a 1% rise in overall cardiovascular disease rates for each additional 1% increase in unemployment. Among the nation’s more vulnerable Indigenous Māori population, however, the disease rate rose to 4% for each 1% increase in unemployment. The authors’ model also suggests that the health effects of pandemic unemployment will persist over the next two decades.

This suggests the need for more robust support for people who are out of work, including continued health insurance coverage, to help buffer the economic toll of job loss and thereby mitigate some of its health consequences. The US has some threads of a social safety net, such as up to 26 weeks of unemployment benefits in most states, and Congress created extra pandemic help when it passed the CARES Act in 2020. But these weren’t enough to prevent a huge increase in food insecurity and use of food pantries last year.

Given the potentially long-term negative effects of job loss on health, one way to protect workers may be helping companies to not lay them off. Policymakers should continue to direct resources toward employers that keep businesses going and workers employed. If layoffs are inevitable, then create incentives to rehire laid-off workers as soon as possible. In California, for instance, Gov. Gavin Newsom signed a bill in April requiring companies in hard-hit industries such as hotel and event management to rehire workers who were laid off during the pandemic when jobs become available.

To address all the health consequences of the pandemic, we believe one must think broadly about interventions and policies. We must recognize the wide scope of job losses across households and industries, not just in workplaces making media headlines, and the unequal burden felt by workers already disadvantaged before COVID-19. The real solution lies in not just getting back to work, but getting Americans into secure jobs that pay a living wage and allow economic recovery alongside the healing of people and health care systems.

This article was produced in collaboration with Knowable Magazine, a digital publication covering science and its emerging frontiers.

Jennie E. Brand, professor of sociology and statistics, University of California, Los Angeles and Sarah A. Burgard, professor of sociology, University of Michigan

The Conversation
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Conversations on LinkedIn nearly doubled since January, and it could be a sign that wealthy Americans are ready to pursue their dream jobs following a pandemic slump

Dan Wang, Associate Professor of Business Management at Columbia Business School

  • Satya Nadella recently said LinkedIn saw “record engagement” as content shared increased 29%.
  • A Columbia Business School expert said this may mean professionals are considering a job switch.
  • A rise in LinkedIn activity says less about the economy, and more about the shift in US priorities.
  • See more stories on Insider’s business page.

If you’re a burned out professional day-dreaming of quitting your job, you are might find yourself spending more time on LinkedIn.

Microsoft CEO Satya Nadella said the company saw “record engagement” on LinkedIn, as conversations increased by 43%, content shared increased 29%, and hours learning new skills increased by a whopping 80% in the first three months of 2021.

And despite major job losses following the COVID-19 pandemic, businesses spent 60% more on marketing jobs on LinkedIn over the last year than the previous year – bringing in a total of $3 billion.

“We once again saw record engagement, as LinkedIn’s 756 million members use the network to connect, learn, create content, and find jobs,” Nadella said on a call to investors on April 27.

Though more time spent on LinkedIn might initially suggest an improving job market, Dan Wang, an associate professor at the Columbia Business School who completed a study about LinkedIn learning in January, said the trend has more to do with the changing attitude of wealthy job seekers rather than an indication that the economy is coming back.

“It’s not obvious to me that it’s the availability of jobs that’s driving increased activity on LinkedIn,” Wang said in an interview with Insider.

“Individuals are more contemplative about their career prospects. They were left to reflect more about their careers, their achievements and positions,” he added. “It’s more of these big cognitive shifts that the pandemic has induced that’s simply being reflected in LinkedIn activity.”

Read more: America’s best burnout expert says employees hold the key to reducing workplace stress. Now if only their bosses would listen to them.

A rise in LinkedIn usage could be a sign that the ‘YOLO economy’ is alive and well.

The New York Times’ Kevin Roose recently reported wealthy professionals are leaving their high-intensity jobs in tech and business for passion projects. He coined the new trend the “YOLO (“you only live once”) economy,” as many professionals have realized during the pandemic that life is too short to waste away typing on Excel. Insider has reported on widespread burnout in consulting, tech, media, and other professional industries.

A similar trend happened during the Great Recession in 2008, when white collar workers who lost cushy jobs in finance turned to entrepreneurship. Some today’s hottest companies – including Uber, Venmo, and Instagram – grew out of the financial crisis.

“So it would not surprise me that there would be an explosion of creative energy as well that follows this period,” Wang said.

The opportunity to quit your job and start a company exists for a small fraction of the US workforce. Millions of Americans are at risk of losing their house this year and are behind on rent.

Though jobs are steadily rebounding in the US as vaccination picks up, just 4% of workers in leisure, hospitality, and retail – among the hardest hit during the pandemic – will get their old jobs back. Women, particularly mothers, left the workforce entirely during the pandemic.

Wang said active LinkedIn users tend to have college degrees and a “higher than average level of employability.” These people probably used April stimulus checks on improving their professional prospects, rather than basic necessities.

Economists said the post-pandemic recovery was “K-shaped,” or devastating to lower-paid Americans yet fruitful for the richest. Wang said the desire for white-collar workers to follow their passions is “emblematic” of the K-shaped recovery.

“The pandemic gave folks who are already kind of fairly well to do an opportunity to reevaluate their careers and perhaps in the opportunity to have a boost in their careers as well,” he said.

Read the original article on Business Insider

Hospitality, sit-down restaurants, and other industries hit hardest by the pandemic are finally hiring again

Pharmacist Madeline Acquilano fills a syringe with the Johnson & Johnson Covid-19 Vaccine before inoculating members of the public at Hartford Hospital in Hartford, Connecticut, on March 3, 2021. - Some 7,400 vials of the Johnson & Johnson Covid-19 single shot vaccine were delivered and an initial offering of the vaccine was given to ten members of the public. (Photo by Joseph Prezioso / AFP) (Photo by JOSEPH PREZIOSO/AFP via Getty Images)
A pharmacist at the Hartford Hospital in Hartford, Connecticut, fills a syringe with the Johnson & Johnson COVID-19 vaccine.

  • Some of the industries hardest hit by the pandemic have finally started adding back jobs recently.
  • Healthcare, hospitality, and sit-down restaurant jobs are on the rise, according to job site data.
  • But some sectors, like education and government, are still lagging behind.
  • See more stories on Insider’s business page.

The US added 379,000 jobs in February and the unemployment rate dropped from 6.3% to 6.2%, blowing past economists’ forecasts and hinting at the start of a broader economic recovery.

But in early March, unemployment claims jumped to 770,000, also above estimates, as Americans began receiving stimulus checks, showing that the economy still has a long way to go. A recent Insider analysis found that, after accounting for misclassifications and people not actively looking for jobs, the real unemployment rate is closer to 9.1%.

Still, companies across many industries have started significantly increasing hiring with expectations that COVID-19 vaccine rates will keep climbing and case rates will keep dropping.

The pandemic hit industries unevenly – hospitality and travel businesses were devastated, and many of the thousands of small businesses that had to close during the pandemic may never reopen – while e-commerce and food and grocery delivery businesses thrived.

Yet some of the hardest-hit industries are now leading the recovery as they finally start to rehire workers after months of layoffs and furloughs, according to data from job search websites viewed by Insider.

Healthcare, retail, sit-down restaurants, and even hospitality businesses are seeing major job growth, as are pandemic-tested jobs in manufacturing, software development, warehouse and logistics. However, education and public sectors still lag behind, based on Insider’s analysis of government data and insights from five top job posting websites – Flexjobs, Indeed, Joblist, Monster, and Snagajob.

If you’re one of the many Americans still looking for work, here are some of the industries that are hiring at the fastest rates.

Hospitality and leisure

After hospitality jobs dropped by 63% last April, more than any other industry, they’re finally starting to bounce back – and the industry is even leading the US’ recent surge in job growth as lockdown orders begin to ease. Out of the 379,000 jobs added last month, 355,000 came from the hospitality industry, according to the latest job report from the Bureau of Labor Statistics.

As of March 15, hospitality jobs on Snagajob were up 54% from mid-February and 141% from last March. Indeed’s latest jobs report, using data through March 12, found that hospitality jobs were still down 27% from their pre-pandemic baseline of February 1, but had still seen an 8% jump from four weeks ago.

But the hospitality industry’s long-term outlook still depends heavily on whether and when business travel picks up again, with many experts predicting that companies will permanently cut back on travel expenses.

Sit-down restaurants

As more states allow sit-down dining again, restaurants are quickly ramping up to meet customers’ pent-up demand. Of the 355,000 hospitality jobs added in February, the BLS said that 286,000 – around 80% – came from restaurants and bars.

Snagajob found that sit-down restaurants saw a 16% month-over-month spike, even as quick-service restaurants were flat during that same time. Joblist CEO Kevin Harrington said server, bartender, and host jobs have all been growing recently.


Retail stores added 41,000 jobs last month, according to BLS data, though Indeed found that it’s been a mixed bag in metro areas where many people are working from home.

But Snagajob found that retail jobs are up 62% month-over-month, and, fueled by e-commerce, up 259% since mid-March 2020.


Despite the global pandemic, healthcare jobs tanked over the past year as people canceled routine checkups, preventative treatments, and elective surgeries, forcing hospitals to cut various jobs.

“More than two million healthcare jobs were lost in April 2020 alone, and only about half of these jobs have returned since,” Harrington said, adding that a recent Joblist survey “found that more than 50% of working Americans reported skipping medical or dental care in the last year.”

But amid the country’s massive vaccination effort, pharmacy jobs are up 10.9% from mid-February and 49.2% from February 1, 2020, while nursing and medical-technician jobs are also on the rise, according to Indeed.

Gig work, on-demand, and freelance jobs

The gig economy, which included a large, growing, and hard-to-measure segment of the US’ blue- and white-collar workforces even before the pandemic, saw a major boost as Americans scrambled to find any source of income.

Snagajob has seen posts for on-demand jobs increase 53% month-over-month and a whopping 470% year-over-year, while Joblist saw a 40% jump in “freelance” jobs last summer.

“This trend has continued in recent months as companies embrace remote freelancers as an alternative to making full-time hires in this uncertain economic climate,” Harrington said. “The supply of skilled remote labor is as high as it has ever been right now, and many companies have now figured out how to conduct business remotely.”

While blue-collar gig jobs may have shifted from moving people to moving food, packages, and other goods, during the pandemic, Harrington said all types of gig work are here to stay.

Major companies like Amazon, Uber, Google, and Facebook already make widespread use of contractors because they’re cheaper, pose less legal risk, and allow companies to grow and shrink their workforces more flexibly. Other industries are increasingly adopting this model.

Warehouse and logistics jobs

The boom in e-commerce during the pandemic sparked a rise in warehouse jobs that has continued even past the holiday season.

Snagajob found a 38% month-over-month jump in warehouse and logistics jobs, and Indeed saw a 7% rise in loading and stocking jobs since mid-February. Longer term, Indeed has seen loading and stocking jobs climb 44.7% since its pre-pandemic baseline, and Joblist saw more than a 100% jump year-over-year in warehouse jobs.

Tech and technical positions

As was the case before the pandemic, there’s once again significant demand for software engineers and project managers, according to Joblist, while Monster has seen a spike in jobs involving computational and math skills.

Remote-friendly business functions

While not industry-specific, job postings for business roles that can be done remotely have soared during the pandemic as companies become more accepting of remote workforces.

Flexjobs said the top 10 career categories that had an increase in remote job openings from March 2020 to December 2020 included: marketing, administrative, HR and recruiting, accounting and finance, graphic design, customer service, writing, mortgage and real estate, internet and e-commerce, and project management.

Construction, government, and education jobs still lagging

Some industries have yet to restart hiring efforts in significant numbers – and some even continue to bleed jobs.

Monster and Joblist have both seen recent declines in construction jobs, partly due to the winter weather and related supply chain issues.

State and local government jobs also declined recently, according to Joblist and BLS data, while Flexjobs also found a lower availability of remote jobs in this sector.

School closures and plummeting college enrollment rates during the pandemic hit schools’ pocketbooks hard, and many have yet to bounce back. Indeed found just a 2.7% increase in teaching jobs since mid-February, down 4.6% since pre-pandemic days.

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Don’t be fooled by the jobs report, the Federal Reserve isn’t hiking interest rates any time soon

fed chair jerome powell
Federal Reserve Chair Jerome Powell prepares to speak during a House Financial Services Committee hearing on Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response in the Rayburn House Office Building on December 2, 2020 in Washington, DC.

  • The jobs report was strong, but the US economy has a long way to go to bounce back from the COVID crisis.
  • This means the Federal Reserve isn’t going to ease up on its crisis measures anytime soon, and it certainly won’t raise interest rates.
  • Just listen to Fed Chairman Jerome Powell, he’s going to let the job market run hot. 
  • George Pearkes is the global macro strategist for Bespoke Investment Group.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit the Business section of Insider for more stories.

Today’s jobs report from the Bureau of Labor Statistics was good news for the US economy, with businesses reporting 349,000 jobs added in February. But that good news, while welcome, is unlikely to mean anything for Federal Reserve policymakers, who have bigger plans for the labor market than a few strong jobs report numbers.

In a Q&A with the Wall Street Journal yesterday, Fed Chair Jerome Powell outlined the central bank’s areas of focus for the economy. In keeping with the changes to their long-term goals updated last year, the Fed’s labor market target is now “maximum employment”, which officials admit is “a broad-based and inclusive goal that is not directly measurable.” 

Instead of focusing on a single number like the unemployment rate or attempting to keep employment at a level that doesn’t create a risk of inflation, this approach admits that the relationship between inflation and labor markets has broken down in recent decades. So instead of obsessing over inflation and individual labor market numbers, the Fed now hopes to create conditions where jobs are plentiful for all who want them.

Recent experience suggests this is the correct approach. In the pre-COVID economic peak, 80.5% of Americans in their prime working years (25 to 54) had jobs, the highest since 2001 but well short of the record 81.9% from April of 2000. Despite that very broad labor market success, core inflation only rose 1.6% in 2019, illustrating that running labor markets hot was not causing inflation to soar.

This experience – a strong labor market with little inflation – should influence the Fed’s thinking going forward, especially when it comes to the emergency measures put in place to deal with the COVID crisis.

As the economy continues  to recover from COVID, markets have begun to assume that the Fed is going to start to roll back some of these crisis measures over the next year or so. Some investors and Fed watchers believe quantitative easing (purchases of Treasury debt and mortgage-backed securities guaranteed by the federal government) may be “tapered” this year or early in 2022. Interest rate hikes are also, in the view of these market participants, likely to follow. Markets point to investors assuming rates will not be raised this year but some pricing of potential hikes is creeping into the 2022 calendar year and multiple interest rate hikes are fully priced in 2023.

This speculation – both about QE easing and the potential for rate hikes in the next couple of years – is inconsistent with the guidance the Federal Reserve has offered. 

In yesterday’s Q&A, Powell said it was “highly unlikely” that maximum employment would be achieved this year, even though there is “good reason to expect job creation to pick up.” To illustrate why strong jobs growth doesn’t mean the Fed needs to tighten, the chart below shows the prime-age employment/population ratio. As it stands, in order to achieve the same level of employment as pre-pandemic, prime age workers economy would need another 5.04 million jobs.

pasted image 0 (9)

Maximum employment likely means a prime-age employment-population ratio well above the prior cycle highs, so the shortfall is even more than that 5.04 million jobs. For context, the solid February jobs report would need to be repeated every month for 14 months to get this ratio at or above its old peak, assuming every new job went just to this category. At the 154,000 pace of job creation for 25-54 year olds only, maximum employment is 33 months away.

This is just one example of how long the hole US labor markets are in will take to climb out of, but interest rate markets are pricing almost four 25 basis point hikes by the Federal Reserve by the end of 2023…which is 33 months away.

Only one thing can be true: either the interest rate markets are wrong, or the Fed is wrong in its commitment to returning the US to maximum employment. If you take the FOMC at its word, job creation numbers this year are almost irrelevant, even if they follow the solid pace set by February’s numbers. What’s really important is the distance to maximum employment, and that remains huge, leaving interest rate speculators only one out if they’re to be proven correct about the path of Federal Reserve policy.

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The jobs report may look good, but it also proves the economy is sicker than it seems

  • The jobs report showed the US economy added 379,000 jobs in February and the unemployment rate dropped to 6.2%.
  • But that good news actually hides just how much the labor market is really struggling.
  • Nick Buffie is an economic policy analyst and graduate of the the Harvard Kennedy School.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit the Business section of Insider for more stories.

Earlier this morning, the Bureau of Labor Statistics released its February 2021 jobs report. Over the coming days, the media will likely focus on two statistics: the unemployment rate (which fell to 6.2%) and the number of jobs created (379,000), both of which were better than economists’ expectations. But despite the focus on these numbers, both measures greatly overstate the strength of America’s labor market.

There are a couple of technical reasons for this. To be counted as unemployed, a jobless individual must fit a specific set of criteria: they must want to work, be available to work now, and have searched for work within the past four weeks. In the time of COVID, there are many reasons why a jobless American might not be classified as “unemployed.” They may need to care for a loved one with COVID, or perhaps for a child attending school online. Or they may give up the job hunt after months of futile searching.

Overall, the unemployment rate has increased 2.7 percentage points since January 2020. Yet this increase accounts for less than half of all job losses. Adjusted for population growth, the number of unemployed Americans has only gone up by 4.1 million, despite the fact that employment is down by 9.3 million.

Even high ranking economic officials like Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have admitted that the headline unemployment rate is misleading and overstates the strength of the job market.

Labor Force Table

The number of jobs created is a similarly misleading measure. If the rate of job growth is slower than the rate of population growth, the employment rate will decline even as the number of jobs increases.

Fortunately, there are better ways of diagnosing the condition of the labor market. But unfortunately, each of the improved metrics indicates that the economy is even sicker than we thought.

The prime-age employment rate

It is easy to correct for the biases in the metrics above. Rather than looking at unemployment, look at employment; and instead of counting the number of jobs, count jobholders as a share of the population.

However, correcting for these errors still leaves a third source of bias: aging. As Baby Boomers hit retirement age, a larger share of the population will choose to stop working. So the overall percentage of Americans who are employed will fall, even if job prospects aren’t worsening for working-age people.

Given the demographic shift, the best metric is the prime-age employment rate, which measures the share of 25 to 54 year-olds with a job. As shown in the graph below, prime-age employment fell from 80.5% the previous January to 69.6% by April. The labor market then experienced four months of rapid recovery, regaining over half the lost jobs. 

Yet since then, employment growth has been stagnant. As of last month, the prime-age employment rate was 76.5%, down 4.0 percentage points from where it was at the beginning of 2020 – meaning that nearly 5.1 million prime-age Americans remain out of work. Notably, this is greater than the increase in unemployment among the entire adult population.

Prime Age Employment Rate

Involuntary part-time employment

The unemployment rate measures unemployed Americans as a share of the civilian labor force. It is calculated via the following formula:

Unemployment Definition

A better metric would consider a group less susceptible to dropping out of the labor force. So instead of looking at the unemployment rate, I have created a parallel measure called the involuntary part-time employment rate. It is methodologically similar to the unemployment rate, but instead measures involuntary part-time workers – those who have had their hours cut or can’t find full-time work – as a share of the full-time workforce. (The measure excludes “voluntary part-time workers,” which are people who prefer to work part-time.) Its formula is given below:

Involuntary Part Time Definition

This measure tells a similar story to the prime-age employment rate. As of January 2020, just 3.1% of workers who prefer full-time employment were stuck in part-time jobs. That rate almost tripled over the next three months, peaking at 9.0% in April. It then began declining, falling to 4.9% as of September. 

Yet last month, the involuntary part-time employment rate was 4.6% – just 0.3 percentage points below where it was five months prior, and still 1.5 percentage points above its rate from a year ago. Here too, we see that the labor market is incredibly feeble, even beyond what the traditional metrics tell us.

Involuntary Part Time Employment Rate

The duration of unemployment

One last accurate barometer is the duration of unemployment – the time that workers spend between jobs. In a strong economy with ample job opportunities, we expect employers to generate plenty of new openings, with the unemployed quickly landing new jobs.

In today’s economy, we see the opposite. Approximately 42% of the unemployed have been out of work 27 weeks or longer – compared to less than 20% at the beginning of last year. Similarly, in January 2020, the unemployed reported having been out of work for a median duration of 9.3 weeks; that figure had risen to 18.3 weeks as of last month.

At this point, most commentators are pessimistic about the U.S. labor market – as they should be. But even the dreary reports understate just how bad it’s gotten. Along with the millions who have slipped into unemployment, millions more have dropped out of the labor force entirely. Many of the unemployed have been out of work for months on end, and for those lucky enough to have kept their jobs, there have been huge cutbacks in hours. Statistics like 6.2% unemployment and 379,000 new jobs provide only a glimpse of this story.

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Rising remote work is upping job inequality in European capitals and ‘scarring’ some sectors, says OECD report

The expansion of remote working has led to labor inequalities in major European capitals.

  • An report by the OECD and Indeed warned that remote working may aggravate labor inequality. 
  • Analyzing job postings for major European capitals, experts said the service sector may be scarred.
  • The percentage of remote job postings is increasing but the job market has still not recovered.
  • Visit the Business section of Insider for more stories.

Remote working options have allowed many companies to keep going during the COVID-19 pandemic, with some companies even thriving as a result. However, this hasn’t been possible in all sectors with retail, hospitality, and healthcare among the most affected.

The expansion of remote working has led to labor inequalities in major European capitals including London, Paris, Madrid, and Berlin. Unemployment in the UK hit its highest level in five years last month and job offers have been harder to come by in all the cities and their countries. Meanwhile, remote jobs have thrived.

Sundar Pichai
Google plans to try and accommodate remote working indefinitely.

This is one of the major findings published in a report on remote working in European capitals, co-authored by OECD economist Lukas Kleine-Rueschkamp and the Indeed job portal’s chief research economist for the MENA area Pawel Adrjan.

Using data from the Indeed portal, they said: “Labour markets in these cities are being pulled apart in early 2021, with postings for higher-paid jobs performing better than those for lower-paid service jobs.”

Remote working as a factor of inequality

“The move to remote work is greater and more persistent in these cities than in other places and may be long-lasting,” the report said.

A survey conducted in January by the National Association for Business Economics (NABE) found that just one in 10 companies expected their employees to return to the office after the pandemic.

Major companies have recently extended their remote working policies, with Google planning to try and accommodate remote working indefinitely.

“Cities such as London have already experienced population declines,” Kleine-Rueschkamp and Adrjan added. They said that although it was unlikely that living in a major European capital would not have its perks after the pandemic, “the trends COVID-19 has initiated might weaken their appeal.”

Remote working does appear to be much more prevalent in major cities than in the rest of the country. Remote work increased 7.3% higher in Berlin than in the rest of Germany, and 5.4% more in Madrid than the rest of Spain.

london street
The report warned of the consequences of further decline in European capitals.

Paris and London had smaller disparities but they were still notable. Remote working growth was 4% higher in Paris than in the whole of France, and 2.4% higher in London than the rest of the UK.

Remote job offers previously constituted 5% of the overall workforce in Madrid in 2020 but stood at 15.7% a year later. In the rest of Spain, the rate has increased from 4% to 10.4%.

The report attributes this phenomenon to the fact that “postings in occupations suitable for working at home, like tech, finance, law, and marketing, are most prevalent in big cities.” In comparison, the service sector is heavily affected by remote working and could be “scarred for a long time,” especially in London and Paris.

Fewer jobs available than before the pandemic

The OECD report revealed that job markets in European capitals had been seriously hit by the pandemic. London was the worst affected, with 41% fewer vacancies at the end of January 2021 compared to February 2020.

Paris and Madrid both had around 25% fewer vacancies than before the pandemic, while Berlin had 8% fewer. Paris was the only instance where the capital was worse affected than the rest of the country.

The report warned of the consequences of further decline in European capitals, as their economic growth tended to outstrip the rest of the country. In the years prior to the pandemic, “GDP per capita jumped more than 12% in these cities, almost 3 percentage points faster than national growth.”

At the height of the pandemic-related job market contractions, however, capitals were affected more than the rest of the country.

Job openings in London were 57% lower than before the pandemic, 48% lower in Madrid, 42% lower in Paris, and 26% lower in Berlin. The report noted that “for much of 2020, job openings in these cities were between five and 15 percentage points lower” than the rest of the country.

The report said large cities would “a difficult adjustment period for some urban workers,” adding that “the pandemic’s labor market effects may be temporary for some sectors, but, for others, they may last.”

Policymakers should support displaced workers and those at risk of redundancy by offering comprehensive skills development strategies tailored to local conditions,” the researchers concluded.

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Joe Biden can help remake the Federal Reserve so that it actually helps America’s workers

joe biden
President-elect Joe Biden

  • The Federal Reserve is finally starting to take the concerns of average workers more seriously in its monetary policymaking.
  • In order to cement this commitment to workers and full employment, President-elect Joe Biden should nominate Fed Board members with a background in organized labor.
  • There have been a vanishingly small number of labor leaders at the Fed over its long history, this needs to change.
  • Kaleb Nygaard is a graduate student at Yale’s School of Management studying Systemic Risk. He is the Editor in Chief of the central banking education website Centralverse and the host of The Bankster Podcast.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider’s homepage for more stories.

It’s time for someone to truly represent the voice of workers at the Federal Reserve.

The health and economic one-two-punch of COVID-19 has had a particularly devastating effect on working-class families. It has also made it clear that policymakers need to focus their efforts on helping those families. 

Despite this, not a single person with a background in organized labor has had a vote on the Federal Reserve’s all-important Open Markets Committee (FOMC), past or present. Since it was formalized in the 1930s Banking Acts, there have been 179 people who have served on the committee. 

Adding someone with a background in labor to the leadership of the Fed would help ensure these working-class families have representation at the most important macroeconomic decision-making-table in the country. 

To repeat, not a single one has had a background in Labor. 

In January, President Biden should change that.

A seat at the table and a voice at the Fed

There are two types of participants on the FOMC: seven Governors who work from the Fed office in Washington DC and 12 Presidents who head the Reserve Banks spread across the country. How they are chosen and who does the choosing is very different for the two types. 

The seven Governors are nominated by the US President and confirmed by the Senate in the same fashion that Cabinet Secretaries or Supreme Court Justices are chosen. 

By law, the Governors are supposed to consist of “a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country”. 

One of the seven seats sits empty at the moment. On day one, President Biden should nominate someone with a background in labor to fill the seat, and whichever party controls the Senate should confirm the nominee. 

The selection process for the 12 Presidents is more complicated. Each Reserve Bank is overseen by a nine-member Board of Directors. Three are bankers, elected by banks in the area. Three are non-bankers, elected by banks in the area. And three are non-bankers, appointed by the seven Governors in Washington DC. The six non-bankers are the ones responsible for choosing the Reserve Bank President. 

By law, the non-banker-directors are supposed to consist of “the interests of agriculture, commerce, industry, services, labor, and consumers.” So although the process is more complicated and less democratic for the selection process of the Reserve Bank Presidents, the legal foundation upon which it sits explicitly includes Labor representation.

In the full 106-year history of the Fed, only 45 representatives of labor have been on the Board of Directors of the 12 Reserve Banks. 

Chart 1

And when you look at it as a percentage of the non-banker directors, the lack of labor representation is even more paltry.

Chart 2

Less than 20% of the labor representatives were elected by banks. The remaining 80% plus were appointed by the Governors in Washington DC. The total per district also varies greatly. The Federal Reserve Bank of New York has had the most with nine, and the Federal Reserve Bank of Atlanta has not had a single one. 

Chart 3

In August, the Fed announced the conclusion of their first-ever-public framework review. There were many changes made because of the review, but the overall thrust of the changes was to give greater attention to improving the employment situation of average Americans, with the greatest impact of the changes going to working-class families. 

This focus on the labor market and working families even showed up in 2019, when the Fed made a sharp turnaround and reversed the interest rate increases they had made in the previous few years. They admitted they’d missed the mark on full employment. As Chairman Jay Powell said at the time: “We really have learned that the economy can sustain much lower unemployment than we originally thought without troubling levels of inflation”.

To confirm the spirit of both the Fed’s 2019 admission of misreading the employment situation and the 2020 policy changes, President Biden should nominate someone with a background in labor to fill the empty Governor seat. Going forward, this would ensure that the voices of the tens of millions of working-class families who are struggling through the effects of the pandemic, are heard in the decision-making room of our country’s central bank.

For the same reasons, the Reserve Bank Board of Directors should consider candidates with a background in Labor for future Reserve Bank President positions. 

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