The 5 sectors struggling the most with hiring and what it says about the reopening US economy

Warehouse New York coronavirus
  • A labor shortage is slowing the US economic rebound, but its effects aren’t evenly spread.
  • While job openings have skyrocketed, some sectors are seeing little take-up as people return to work.
  • Detailed below are the five industries having the hardest time hiring through the economic reopening.
  • See more stories on Insider’s business page.

Various signs point to a historic labor shortage in the US economy. But not all sectors are experiencing the same pain.

What began as a strong recovery for the labor market hit a major snag in the spring: Americans weren’t rushing back to the workforce. Hiring slowed sharply in April and missed expectations again in May. Wage growth soared through both months as employers looked to attract workers. Both job openings and quits hit all-time highs in April.

Alleged causes of the worker shortage are abundant. Democrats see expensive childcare and COVID-19 fears as holding Americans back from seeking work. Republicans have blamed the shortfall on President Joe Biden’s stimulus plans, specifically the federal government’s $300-per-week boost to unemployment insurance.

But while lawmakers paint the shortage as an issue plaguing the broad economy, some sectors are having far harder times at hiring compared to their pre-pandemic trends. Data published in last week’s Job Openings and Labor Turnover Survey report reveals where companies are struggling the most to rehire.

1. State and local governments

Virginia state capitol

The $1.9 trillion stimulus package passed in March included $350 billion for state, local, and tribal governments, but the sector is still having a rough go of hiring as the US reopens.

While the federal government can — and almost always does — run an annual budget deficit, states need to balance their budgets. This typically leads to layoffs during recessions, since weaker tax revenues place new pressure on states’ budgets. The lack of sufficient aid for state and local governments led to intense and prolonged economic pain in the years after the financial crisis.

Congress aimed to avoid such an issue in the current recovery, but aid hasn’t yet helped hiring. And when state and local government education jobs are excluded, the sector’s openings are seeing very little uptake.

2. Educational services

teacher

The education sector has also seen unusual tightness during recent months. The industry faced intense pressure at the start of the pandemic amid a shift to remote learning. Schools and universities are now set to return to at least partial in-person teaching in the fall, but efforts to rehire are coming up short.

The pipeline for teachers, which make up a large share of hires in the sector, is also drying up. Teacher-training enrollment dropped by 33% over the past decade, according to an August report from the Center for American Progress. With the new school year a few months away, hiring needs are likely to intensify further.

3. Transportation, warehousing, and utilities

amazon employee

Giants like Amazon and Walmart saw activity surge throughout the pandemic as more Americans shopped from home. With millions returning to work, the businesses are raising wages amid efforts to boost their headcounts.

But while the industry went on a hiring spree throughout the pandemic, new reports show intense burnout dragging on employment. Amazon, for example, holds an annual turnover rate of 150%, The New York Times reported on Tuesday.

While the company doesn’t represent the entire industry, it’s on its way to becoming the biggest employer in the US. And other reports of burnout among delivery drivers and warehouse employees suggest the turnover is pervasive.

4. Manufacturing (non-durable products)

poultry plant

Manufacturers of non-durable goods — those that are consumed relatively quickly — face short- and long-term hiring pressures.

As the US reopens, a wave of pent-up demand has left factories on the back foot. Shortages of key materials formed massive bottlenecks, and order backlogs hit multiple record highs through the spring.

Economists believe that, as spending cools, such shortages will fade and factories can better service demand. But the industry is also staring down a massive skills gap. Decades of steering Americans toward top universities and away from trade schools evaporated the industry’s hiring pool. A May study from Deloitte and the Manufacturing Institute found that, unless the trend is countered, manufacturers could leave as many as 2.1 million jobs unfilled.

“There’s a perception problem,” Carolyn Lee, executive director of The Manufacturing Institute, told Insider last month. “People don’t know that there are jobs that are desirable, that there are jobs that have family-supporting wages, and that there are jobs that are stable.”

5. Arts, entertainment, and recreation

Closed Broadway coronavirus.

Theaters, recreation centers, and other entertainment venues were among the businesses hit hardest by pandemic restrictions. Reopening has given the industry a new lease on life, with concert tours now resuming and venues allowed to open with some limitations.

Yet the country is still far from putting the pandemic behind it. Only about 49% of Americans are covered by COVID-19 vaccines, according to Bloomberg data. And while daily case counts plummeted in recent months, the country is still adding nearly 11,000 cases each day.

Hiring in arts, entertainment, and recreation bounced back as lockdown measures were reversed. Yet lingering COVID-19 fears and the inability to fully reopen are likely weighing on the sector.

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Having a job right now means longer hours and slow pay growth

restaurant worker New York City NYC
A restaurant worker wears a protective face mask and gloves in midtown as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 13, 2020 in New York City.

  • While new hires are benefitting from rising pay and new incentives, employed Americans face worsening conditions.
  • The average workweek rose through the spring, and wage growth for the employed weakened.
  • The trends come as quits sit at record highs, suggesting Americans are leaving jobs to benefit from the labor shortage.
  • See more stories on Insider’s business page.

Americans waiting to rejoin the workforce have a lot going for them. Businesses rushing to rehire are raising wages and throwing in other incentives ranging from signing bonuses to free iPhones.

It’s another story for employed Americans. By some measures, their work lives are actually worsening.

The sudden reopening of the US economy placed the labor market in a unique spot. After years of strained job supply and an abundance of workers, the formula flipped. Employers were suddenly struggling to hire, and workers were in short supply.

The so-called labor shortage has led businesses to step up their efforts to attract workers. Average hourly earnings ballooned for two months straight as employers boosted pay, particularly for new hires. But for those already employed, data shows a decline in conditions.

For one, average weekly hours have crept higher through the spring. Work hours dipped slightly to 34.3 in May, landing just below 20-year highs. The latest reading compares to a pandemic-era low of 33.4 hours. Some of the uptick is likely due to part-time workers converting to full-time, but the trend could also suggest employed Americans are working more as the country rebounds.

Wage Growth Tracker
Source: The Federal Reserve Bank of Atlanta.

Those additional hours are also yielding less in return. Wage growth for already-employed Americans has been on the decline through the year, most recently falling to an unweighted three-month moving average of 3% from 3.2% in May. By comparison, the average rose as high as 3.9% in late 2019.

The growing workweeks and slowing pay growth come amid a major shakeup in the US labor force. Quits rose to a record high in April, according to JOLTS data published last week. At the same time, payroll growth slowed sharply and job openings leaped to a record high. Taken together, the data signals a broad rethink of how Americans work and what they demand as compensation.

A Monday report from the Federal Reserve Bank of New York shed new light on the unusual labor-market situation. The mean perceived probability of losing one’s job fell to 12.6% in May, the lowest level since the Fed’s survey began in 2013.

Yet the mean perceived probability of finding a job after losing work rose to 54% from 49.8%, according to the report, the largest one-month gain on record and the gauge’s highest level since February 2020. The gain suggests Americans are the most confident in their chances of finding work since the pandemic recession began.

With quits at record highs and incentives for new hires growing more attractive, workers could be switching jobs to take advantage of the labor shortage and extraordinary demand from employers.

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Job openings rise to new record-high in April as US labor shortage slows hiring

Hiring sign labor market coronavirus
People walk by a Help Wanted sign in the Queens borough of New York City on June 04, 2021 in New York City.

  • US job openings jumped to 9.3 million from 8.3 million in April, setting a new record high.
  • The reading comes in above the median estimate of 8.2 million and marks a fourth straight gain.
  • Roughly 1.1 Americans competed for every opening, down from 1.2 as the labor shortage intensified.
  • See more stories on Insider’s business page.

Demand for workers in the US intensified in April as nationwide reopening squared off with an unprecedented labor shortage.

Job openings rose to a record-high 9.3 million from 8.3 million in April, according to Job Openings and Labor Turnover Survey, or JOLTS, data released Tuesday. Economists surveyed by Bloomberg held a median estimate of 8.2 million openings.

The reading marks a fourth consecutive jump in openings. The report also sheds more light on how the labor market performed through April. The month’s nonfarm payrolls report, released in early May, showed hiring drastically slowing as businesses reported difficulties finding workers.

The April payroll gains have since been revised slightly higher, and data published last week showed hiring rebound in May. Yet job growth is still down from the pace seen in March despite openings climbing further. Democrats have attributed the slowdown to a push for higher wages, while Republicans largely blame enhanced unemployment insurance.

The Tuesday JOLTS report showed fewer Americans competing for each opening. About 1.1 available workers existed for each open job, down from 1.2 in March. The reading compares to a pre-pandemic average of 0.8 and a crisis peak of 5.

A detailed look at April hiring and firing

Like the jobs report published on Friday, the JOLTS release includes more a granular look at which sectors thrived and which lagged, albeit one month behind the Bureau of Labor Statistics’ report.

The accommodations and food services sector added the most job openings throughout April, with a gain of 349,000 positions. The educational services sector shed 23,000 openings, setting the month’s largest decline.

Separations, which include layoffs and quits, jumped by 324,000 to 5.8 million.

Quits rose to a record-high 4 million from 3.6 million. Layoffs and discharges fell by 81,000 to 1.4 million, mirroring the downward trend in weekly jobless claims.

The US hiring rate held steady at 4.2%. That’s just above the pre-pandemic trend and suggests the labor shortage intensified through April.

The latest labor-market diagnosis

While the JOLTS report lends more detail to how the economy fared in April, Friday’s jobs report gave the most up-to-date look at the labor market’s performance. The US added 559,000 nonfarm payrolls last month, missing the median estimate of 674,000 jobs but improving significantly from the April pace.

The unemployment rate fell to 5.8% from 6.1%. The decline, powered by strong hiring and a slight drop in labor-force participation, beat the median estimate of 5.9%.

Economists largely viewed the report as a lukewarm print. “With unemployment benefits set to fade in the fall, we may be waiting until the end of summer before we see clear evidence of a fundamentally healing labor market,” Seema Shah, chief strategist at Principal Global Investors, said.

The Friday report also showed wages surging for a second consecutive month. Economists have looked to average hourly earnings for signs of whether labor shortages are merely overblown anecdotes or signs of a more widespread shift. Combined with the marked climb in openings through the spring, the strong upward pressure on wages backs up reports that Americans are holding off on returning to work.

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Levi’s CEO says Amazon’s ‘$20 an hour’ wages are forcing the jeans maker to rethink worker pay amid the tight labor market

Chip Bergh, President and CEO of Levi Strauss, participates in a panel discussion at the 2015 Fortune Global Forum in San Francisco, California November 3, 2015. REUTERS/Elijah Nouvelage
Chip Bergh, President and CEO of Levi Strauss.

  • Levi’s has a hard time finding workers when there’s an Amazon distribution center nearby.
  • CEO Chip Bergh told the AP that he’s “considering right now what we have to do with our wage rates.”
  • Amazon hired more than 500,000 people in 2020, and the majority of workers earn over $16 per hour.
  • See more stories on Insider’s business page.

Levi Strauss and Co. has been selling jeans for 168 years, but 2021 is proving particularly difficult for the company to find workers, thanks in large part to Amazon.

“There’s no question that labor is challenging right now,” said CEO Chip Berg in an interview with the Associated Press.

Even as Berg calls the Levi’s “aspirational company for a lot of people to work for,” he says the company is starting to face some headwinds when it comes to staffing its retail stores and distribution centers in the current labor market.

“We are considering right now what we have to do with our wage rates going forward,” he said. “Candidly, we have folks that are right around the corner from Amazon distribution centers and Amazon is not afraid to pay $20 an hour.”

Berg’s comments are the latest evidence that Amazon is establishing a new minimum wage in America.

Indeed, the Amazon effect on local labor markets has been measurable.

“One study showed that our pay raise resulted in a 4.7% increase in the average hourly wage among other employers in the same labor market,” CEO Jeff Bezos said in Amazon’s latest shareholders meeting, citing research from economists at UC Berkeley and Brandeis.

The actual federal minimum wage was last raised in 2009 and is still $7.25 per hour, while Amazon has had a $15 starting wage since 2018.

“When we set a $15 minimum wage we did so because we wanted to lead on wages and not just run with the pack,” Bezos said.

The decision certainly helped propel Amazon’s expansion, but the disruption from the pandemic kicked off an even more dramatic reshuffling of the labor market across industries from retail to food service.

Like Levi’s, apparel-maker Under Armour specifically cited Amazon as a catalyst for the company’s recent wage hike.

“The reality is from a competitive standpoint of hiring, we know that we compete not just within our industry for talent but also outside of the industry to places like Amazon,” Stephanie Pugliese, the president of the Americas region at Under Armour, told Bloomberg.

In 2020 alone, Amazon reported hiring more than a half million workers, the majority of whom earn more than $16 per hour, in addition to an extremely competitive benefits package.

And in May, the company announced it is hiring another 75,000 workers in fulfillment and logistics network across the US and Canada with a starting wage of $17 per hour and hiring bonus of up to $1,000.

As Miami chef Phil Bryant told The Washington Post, “If I can make $17 per hour at an Amazon warehouse but only $14 per hour as a line cook, a notoriously hot, stressful, intense job, why would I do that?”

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The massive jobs shortage will keep stronger inflation temporary, Goldman Sachs says

Job fair coronavirus
People seeking employment speak to recruiters at the 25th annual Central Florida Employment Council Job Fair at the Central Florida Fairgrounds.

  • Stronger inflation will soon fade as millions of Americans rush back to work, Goldman Sachs said.
  • Labor supply will rebound as virus fears fade and enhanced unemployment benefits lapse, the bank said.
  • Ending the labor shortage should cool wage inflation, and price inflation will also likely be temporary, Goldman added.
  • See more stories on Insider’s business page.

When it comes to the inflation debate looming over the US economy, Goldman Sachs is on the side of the Federal Reserve and the Biden administration.

Gauges of nationwide price growth are surging at their fastest rate in more than a decade, sparking concerns of an overheating economy ending the recovery early. Republicans and some moderate Democrats have blamed the Fed’s ultra-easy policy stance and unprecedented fiscal stimulus for the inflation overshoot. The Biden administration and the central bank have instead argued the stronger price growth is temporary and fade starting next year.

Goldman economists led by Jan Hatzius reiterated their stance on the Biden side on Monday, citing the latest jobs numbers as supporting evidence. The US added 559,000 nonfarm payrolls in May, missing the median estimate but still a sharp rebound from the dismal April report. Wages shot higher for a second straight month, signaling inflation was picking up in pay and pricing.

The combination of soaring wages and stronger inflation amplified Republicans’ claims of an overheating economy. Yet both pressures should cool in the coming months, Goldman said. For one, the economy is still down roughly 8 million payrolls, and May’s pace of job creation still places a full recovery more than a year into the future. Labor supply, which has been slowing hiring in recent months, should also “increase dramatically” as virus fears dim and enhanced unemployment insurance lapses. As more Americans return to work, wage growth is expected to slow.

Inflation should also cool on the pricing side, according to the bank. Goldman’s trimmed core Personal Consumption Expenditures (PCE) index – which excludes the 30% largest month-over-month price changes – has only risen 1.6% from the year-ago level. By comparison, standard PCE – among the most popular US inflation gauges – notched a 3.6% year-over-year gain in April. Core PCE strips out volatile food and energy prices and is generally viewed as a more reliable measure of long-term inflation.

The disparity reveals the “unprecedented role of outliers” in driving inflation higher, and such an effect should “have only limited effects on longer-term inflation expectations,” the economists said in a note to clients.

“Ultimately, the biggest question in the overheating debate remains whether US output and employment will rise sharply above potential in the next few years,” the team added. “If the answer is yes, then inflation could indeed climb to undesirable levels on a more permanent basis. But our answer continues to be no.”

The forecasts echo sentiments shared recently by central bank officials. Fed Governor Lael Brainard said last week that, as schools reopen and vaccinations continue, it’s likely that the labor shortage will unravel. Job openings sat at record highs by the end of March, and a matching of such huge demand with bolstered supply should drive “further progress on employment,” she added.

More broadly, Goldman expects GDP growth to slow after peaking in the second quarter and normalize as stimulus support lapses. The massive jobs shortfall makes for “significant slack” in the labor market, the bank said, adding that unemployment-based output should reach its maximum potential in late 2023.

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One stunning chart shows just how much faster the US labor market is recovering now compared to the financial crisis

Now Hiring man with mask
  • A full labor-market recovery is more than a year away, but the rebound is still fast by historical standards.
  • The pandemic saw unprecedented job loss, but payrolls are bouncing back faster than in past downturns.
  • The US is on track to recoup all lost jobs in two years. The same feat took more than six years after the Great Recession.
  • See more stories on Insider’s business page.

The US labor market is far from a full rebound. Compared to the last recession, however, the recovery is moving at a breakneck pace.

The economy added 559,000 nonfarm payrolls in May, data out Friday showed. The reading marked a fifth consecutive month of job additions and a strong uptick from the disappointing gains seen in April. The US unemployment rate also hit a pandemic low of 5.8% and major stock indices neared record highs on the encouraging news.

Still, payroll growth hasn’t enjoyed the kind of V-shaped bounce-back staged elsewhere in the economy. At May’s pace of job creation, it would still take until July 2022 for the economy to recoup every job lost during the pandemic. It would take about another year from then to recapture jobs that would’ve been made had the pandemic not occurred. The projections also don’t take the nationwide labor shortage into account, which could further drag on job additions.

Calculated Risk recession chart
Source: Calculated Risk

Comparing the pandemic recovery to the Great Recession and other downturns tells an entirely different story. In a Friday post, economics blogger Bill McBride of Calculated Risk contrasted job creation from recent months to that seen during post-World War II recessions.

The trend is clear: despite seeing far more severe job losses at the start of the recession, the labor market’s recovery is the most V-shaped in modern history.

A few factors explain the pronounced rebound. The government’s response throughout the pandemic was unprecedented. Congress approved roughly $5 trillion in fiscal stimulus, and the Federal Reserve eased monetary conditions through historically low rates, massive asset-purchase programs, and extraordinary lending programs. Combined, the efforts helped economic activity bounce back relatively soon after the pandemic first hit.

The nature of the recession also played a role. The economic crisis was simply a symptom of a once-in-a-century pandemic. Lockdown measures used to curb the virus’s spread were a top reason for weaker activity. Once those restrictions were lifted, Americans with pent-up demand and bolstered savings got out and revived the economy.

The current downturn also doesn’t possess the same structural problems faced in the late 2000s. The Great Recession was fueled by a collapse of integral financial systems. Long-trusted institutions were suddenly behind an economic collapse, and the government was forced to step in with then-unheard-of support. Distrust in said institutions and severe damage throughout the housing market led to a painful and plodding recovery.

The COVID-19 crisis, by comparison, was simple. A deadly virus was spreading throughout the country, so authorities forced lockdowns that caused great harm to the economy.

The US has also learned from the Great Recession and the recovery that followed. An early push for fiscal austerity and inadequate aid for state and local governments hindered the labor market’s healing for years after the financial crisis. Payrolls didn’t return to their pre-recession highs until more than six years after the initial drop, longer than any previous postwar recession.

Policymakers are trying something else this time around. The $1.9 trillion stimulus measure approved in March included $350 billion for state, city, and local governments to offset budget shortfalls. On the monetary front, the Fed’s newly updated goals signal it will maintain ultra-easy monetary conditions well after the pandemic threat fades.

“Now is not the time to be talking about an exit,” Fed Chair Jerome Powell said in January. “I think that is another lesson of the global financial crisis, ‘be careful not to exit too early.'”

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Friday’s jobs report will show hiring rebounded last month after a shockingly grim April, economists say

Fair Wage Demonstration Hiring Washington DC
  • Friday’s jobs report will show whether hiring rebounded in May or slowed further from April’s weaker-than-expected pace.
  • Economists are forecasting a gain of 674,000 payrolls and for the unemployment rate to hit a new pandemic low.
  • Whether the report misses or exceeds expectations could shift Fed policy, Bank of America said.
  • See more stories on Insider’s business page.

The Bureau of Labor Statistics’ monthly jobs report is among the most closely watched gauges of economic health, but Friday’s release is even more anticipated than usual.

It’s the first reading since April data showed a sharp slowdown in hiring and stupefied economists across the board. The Friday report will reveal whether the deceleration was a one-month fluke – or the start of a stagnating recovery.

Economists are largely optimistic. The median estimate for May payroll growth sees the US adding 674,000 jobs throughout the month. That would mark a sharp rebound from April’s 266,000-payroll bounce. Economists also expect the unemployment rate to dip to 5.9% from 6.1%. That level would represent a new-pandemic-era low.

Data published Thursday suggests the forecasts could ring true. ADP’s monthly employment report showed the US adding 978,000 private payrolls in May, blowing the 674,000-payroll estimate out of the water. The reading marked the strongest month of private-payroll growth since June 2020 and a fifth straight month of job additions.

Separately, weekly filings for unemployment benefits fell to a fifth consecutive pandemic-era low last week as layoffs slowed further. Jobless claims totaled an unadjusted 385,000 for the week that ended Saturday, narrowly beating the median estimate for 388,000 claims. Claims have steadily trended lower throughout May, signaling the labor market’s recovery picked up after April’s less-than-stellar data.

To be sure, weekly claims counts and ADP’s report are also volatile and only loosely tied to the government’s nonfarm payrolls data. As seen just one month ago, strong prints from both indicators can still precede an upsetting jobs report.

“It is hard to know what to make of the signal from the ADP report because it has not reliably predicted the BLS data in recent months,” Daniel Silver, an economist at JPMorgan, said in a Thursday note. “Declines in initial claims likely reflect improving conditions in the labor market, although other factors could also be at play.”

Hiring should improve, but don’t get too excited

Experts are finding reasons to temper their expectations for other labor-market signals. Data from the Ultimate Kronos Group and Homebase both show modest increases in hours worked in May, Bank of America economists said last week. The former’s shift-work measure rose by just 0.1% between the May and April payroll weeks, compared to the 0.3% decline from the prior period. The reading “could mean a slightly better jobs report but does not suggest a gangbusters print,” the team led by Michelle Meyer said.

The Homebase employee working index rose just 1.7% between the May and April survey weeks. That similarly hints at a “soft reading,” the bank added.

Other metrics, such as the Conference Board’s labor-market differential index and national purchasing managers’ indices, suggest hiring improved in May. Still, the BofA economists cautioned against “reading too much” into such information for the “magnitude of hiring,” and instead see them as pointing to a general improvement in hiring.

“All told, we see scope for decent gains in employment in May following a disappointing report in April,” the team said.

Taper time? Or delay further?

There’s a fair deal riding on the Friday report, the bank added. The Federal Reserve has indicated it won’t pull back on its ultra-accommodative monetary policy until it sees “substantial further progress” toward maximum employment and above-2% inflation.

The latter condition is already being met, with price growth trending above average as the US reopens. The Friday jobs report, then, is a “critical data point” for the Fed’s next steps toward policy normalization, the BofA economists said.

On one hand, a stronger-than-expected report could push the central bank further toward tapering its emergency asset purchases. The Fed has been buying at least $120 billion of Treasurys and mortgage-backed securities each month to support market functioning. Officials have been adamant they don’t expect to shrink the purchases in the near-term, yet minutes from the Federal Open Market Committee’s April meeting suggested they may soon discuss a plan for eventual tapering.

A strong rebound in employment “could give the Fed more confidence in the recovery and the ability to start guiding markets toward a taper,” BofA said.

Conversely, another disappointing report could push tapering further into the future, the economists said. The central bank has made clear that it’s willing to maintain its easy monetary policy for as long as needed to support the economic recovery. Any sign of the labor market recovery stagnating would likely entice the Fed to keep rates near zero for as long as needed to promote hiring.

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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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The Chamber of Commerce just sounded the alarm on America’s labor crisis – and it’s blaming a lack of qualified workers for a historically stark shortfall

Now Hiring sign
A customer walks by a now hiring sign at a BevMo store on April 02, 2021 in Larkspur, California.

  • A shortage of qualified workers is hindering the labor market’s recovery, the Chamber of Commerce said.
  • Sectoral shifts in worker demand drove a gap between Americans’ skillsets and job openings.
  • Training programs, childcare support, and an expansion of work visas can counter the mismatch, the Chamber said.
  • See more stories on Insider’s business page.

The US economy hasn’t faced a labor shortage quite like this one.

By several measures, the economy is on the mend. Consumer spending has bounced back, more than half of Americans are fully vaccinated, and the strictest lockdown measures have been reversed. But as businesses look to rehire after months of slowed activity, they’re finding it hard to fill openings.

The labor shortage now represents “the most critical and widespread challenge” to US businesses, the US Chamber of Commerce said in a Tuesday report. Only 1.4 available workers exist for each US job opening, according to government data. That’s just half the 20-year average, and the ratio is still falling. In sectors hit hardest by the virus, such as education and government, job openings fully exceed available workers.

Worker availability ratio
Source: US Chamber of Commerce

Economists and politicians have pegged the shortfall to a number of factors, ranging from virus fears to enhanced unemployment insurance. The right-leaning Chamber on Tuesday highlighted the country’s massive skills gap as fueling the shortage.

“We must arm workers with the skills they need, we must remove barriers that are keeping too many Americans on the sidelines, and we must recruit the very best from around the world to help fill high-demand jobs,” Chamber CEO and President Suzanne Clark said.

The organization announced a new initiative on Tuesday aimed at addressing the shortage of qualified workers and difficulties in developing skills. The Chamber is calling for a doubling of the cap on employment visas, federal investment in job-training programs, and an expansion of childcare access for working parents.

A separate survey by The Conference Board echoed the Chamber’s remarks. About 80% of organizations hiring industry and manual service workers said it was either “somewhat difficult” or “very difficult” to find qualified employees, up from 74% before the health crisis. The share of firms saying it’s “very difficult” to find workers grew to 25% from 4%.

The Chamber’s call to action comes as the country forms a wholly new economy. Experts have warned that the post-pandemic economy won’t mirror that seen in late 2019. Millions of Americans will struggle to find work as their jobs are permanently erased, Federal Reserve Chair Jerome Powell said in April. Meanwhile, openings will shift to other industries as the country settles into a new normal.

The mismatch between displaced workers’ skills and new job openings is among the biggest challenges facing the US labor market, economists at Fitch Ratings said last week. The rapid change in worker demand by sector “can lead to lasting increases in unemployment” if Americans aren’t able to quickly pivot, the team said in a note.

Underscoring the mismatch is the decision by GOP governors in 25 states to prematurely end participation in federal unemployment benefits. Those governors have cited increased benefits as a reason that workers are opting not to come back, causing a labor squeeze. But workers say that’s not the full story.

Dina Jones, 54, lives in Texas. Her state’s governor, Greg Abbott, announced that Texas will pull out of all federal benefits effective June 26. Prior to the pandemic, Jones had worked in the airline industry for 27 years.

“I made a really good living, and to go out and take a $12, $15 job is – I’m very skilled,” Jones told Insider. She said she used to manage over 100 employees. She added: “I just don’t understand what’s happening out here in the world that I can’t get a job.”

Early signals suggest low-wage workers will have a harder time pivoting than most. A February report from McKinsey found that low-wage sectors – those hit disproportionately hard by the pandemic – will see permanently weaker labor demand as the country recovers. More than half of the workers displaced from such industries will need to develop new skills and find higher-paying jobs to stay employed after the pandemic ends, the firm said.

“Almost all growth in labor demand will occur in high-wage jobs,” the report added.

As for Jones, who will lose all of her unemployment benefits come June, it stings to hear her governor say that there are plenty of jobs out there.

“The jobs that are out there aren’t the jobs that I used to have, that I’m skilled for, she said. “And that’s the part that hurts.”

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Labor shortages are set to fade by the fall, Fed’s Brainard says

lael brainard
Federal Reserve Governor Lael Brainard

  • Childcare, virus fears, and UI benefits are fueling the labor shortage, Fed Gov. Lael Brainard said.
  • The shortage will likely fade by the fall as vaccination continues and the UI benefit lapses, she added.
  • Employment “remains far from [the Fed’s] goal” but should pick up in the coming months, Brainard said.
  • See more stories on Insider’s business page.

An unusual imbalance between supply and demand in the labor market is holding back the hiring rebound, but the trend shouldn’t last long, Federal Reserve Governor Lael Brainard said Tuesday.

On one hand, job openings soared to record highs in March as the country reopened and businesses looked to rehire. Yet a hugely disappointing April jobs report suggested that, while demand for labor was strong, not enough Americans were looking for work. The phenomenon has since been referred to as a labor shortage, joining the various other supply bottlenecks hindering the economic recovery.

But, like those other bottlenecks, the labor shortage will reverse as the economy heals further, Brainard said while speaking at The Economic Club of New York. The Fed has repeatedly said it expects supply chain issues to be solved as the country returns to a new sense of normal and production capacity bounces back.

Brainard made a similar projection regarding the labor shortage. For one, only about half of Americans are fully vaccinated against COVID-19, meaning millions probably still fear catching the virus. Childcare expenses are also likely weighing on the return to work as parents elect to stay home. And the continued payment of expanded unemployment insurance gives unemployed Americans more time to stay out of the workforce.

It’s difficult to “disentangle” any one of the factors from another, but all three should fade in the coming months, Brainard said. Continued vaccination and the start of the new school year will counter virus fears and childcare needs, respectively. Separately, the federal boost to UI payments is set to expire by September and even earlier in at least 24 Republican-led states.

“For all these reasons, the supply-demand mismatches in the labor market are likely to be temporary, and I expect to see further progress on employment in coming months,” the Fed governor said.

Accelerated hiring would be a welcome sign as the recovery charges on. Employment “remains far from [the Fed’s] goal,” with jobs still down by more than 8 million compared to the pre-pandemic norm, Brainard said. That sum grows to 10 million when considering the job creation that would’ve taken place had the pandemic not slammed the economy.

The progress still to be made backs up the Fed’s ultra-easy policy stance, Brainard added. The central bank has indicated it will maintain its emergency asset purchases and hold interest rates near zero in the near term as the economy recovers. Stronger-than-expected inflation has led some economists to wonder whether a policy pullback could arrive sooner than anticipated, but Brainard reaffirmed that tightening isn’t yet on the Fed’s agenda.

“Remaining steady in our outcomes-based approach during the transitory reopening surge will help ensure the economic momentum that will be needed as current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions,” she said.

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