By definition, economic inequality lifts some parties and leaves many more struggling to keep up.
But the have-nots aren’t the only ones affected. New research shows the whole US economy would benefit if everyone had an equal shot.
Longstanding racial and ethnic inequities cost the US economy a total of $22.9 trillion over the last 30 years, a group of researchers said in a paper published Thursday in the Brookings Institution’s Brookings Papers on Economic Activity. That’s roughly the same as the country’s annual economic output as of 2021.
The team looked to quantify just how much larger the US economy would be if opportunities and outcomes were equal across racial and ethnic lines. The researchers studied differences in economic opportunities and outcomes between white, Black, and Hispanic men and women aged 25 to 64 from 1990 to 2019. Disparities in employment, hours worked, education levels, education utilization, and earnings gaps helped them arrive at the multitrillion-dollar price tag.
By underserving marginalized communities for decades, the US wasn’t only harming those groups, but lowering prosperity for its entire population, the economists said.
“The opportunity to participate in the economy and to succeed based on ability and effort is at the foundation of our nation and our economy,” they said. “Unfortunately, structural barriers have persistently disrupted this narrative for many Americans, leaving the talents of millions of people underutilized or on the sidelines.”
The paper was written by Mary Daly, president of the Federal Reserve Bank of San Francisco; Laura Choi, vice president of the San Francisco Fed; Lily Seitelman, a graduate student at Boston University; and Shelby Buckman, a graduate student at Stanford University.
How to build a more equitable economy
Addressing the economic gaps is no easy feat. For one, differences in both educational attainment and educational utilization complicate efforts to even the playing field. White and Asian Americans are more likely than their Black and Hispanic peers to have jobs that use the full extent of their educational levels. Improving equality doesn’t just rely on improving access to education, but also helping people find work that fits their level of schooling, the team said.
The private sector will also need to pull its weight. Past research has found that racial discrimination in hiring cut down firms’ profitability, and that diversity in the workplace often yields higher revenue, greater market share, and stronger profits, the team said. Investments to close businesses’ gaps in hiring and pay across racial, ethnic, and gender lines can boost their bottom lines while contributing toward greater equality, they added.
Making gains across educational attainment, educational utilization, and hiring practices can also kickstart success cycles across generations, according to the report. Closing the wage gap across racial lines helps close decades-old wealth gaps. That’s key for future gains, as it creates the “wealth begets wealth” cycle that’s benefitted more fortunate Americans for decades, the economists said.
And while solving the disparities stands to improve the entire US economy, doing nothing threatens even higher costs. Racial minorities are expected to make up more of the US population in the years ahead. Improvements from current conditions “are only the beginning,” and failing to act only adds to the massive cost of inequality, the economists said.
“More equitable allocation of talent by education, employment, and jobs improves innovation, invention, and entrepreneurship, which set the foundation for growth today and growth in the future,” they added.”
Filings for unemployment insurance fell last week as the government’s boost to UI payments expired nationwide.
Initial jobless claims totaled 310,000 last week, the Labor Department announced Thursday. Economists surveyed by Bloomberg expected filings to decline to 335,000. The print marks a second straight decline and places claims at a new pandemic-era low.
The previous week’s count was revised to 345,000 from 340,000.
Continuing claims, which count Americans receiving unemployment benefits, declined to 2.78 million for the week that ended August 28. That landed above the forecast of 2.73 million claims and marked a sixth straight pandemic low.
The latest claims data covers the last week before enhanced unemployment benefits lapsed. The federal government had been supplementing states’ UI payments with a $300-per-week benefit since the American Rescue Plan was approved in March. That boost expired on September 6, leaving about 7.5 million jobless Americans with less support as virus cases soared higher.
The pullback in UI support comes as claims sit at historically elevated levels. Jobless claims are still well above their pre-pandemic trend of 200,000, and continuing claims need to drop by another million to return to their past average.
The cutoff didn’t affect every state at once. Twenty-six state governments had already pared back the supplement prematurely, with many arguing the move would push more Americans into the workforce. Yet research suggests the early pullback in UI support harmed local economies more than it helped. Analysis from The Wall Street Journal found “roughly similar job growth” in states that did and did not end benefits early. And Homebase researchers found that employment actually fell in states that slashed UI ahead of schedule.
The Biden administration has said that states can continue to provide boosted UI payments on their own with leftover funding from the American Rescue Plan. Yet no state has committed to taking such action, Insider’s Juliana Kaplan and Joseph Zeballos-Roig reported, and it’s unlikely Democrats can pass another salvo of enhanced UI.
Just 50.1% of Americans expect to work beyond age 62, according to a July survey conducted by the Federal Reserve Bank of New York. That’s down from 51.4% in March and marks the smallest share since the Fed’s survey began in 2014.
Conversely, the reading means nearly half of US adults plan to retire before turning 62 years old. The share of Americans expecting to work beyond 67 also fell in July to a record low 32.4% from 32.9%.
This could be good news for workers, but presents challenges for the American economy.
3 reasons Americans are retiring early
More than one million older workers have exited the workforce since Covid struck the US in March 2020. Factors driving the mass exodus – deemed the “Great Resignation” by psychologist Anthony Klotz – vary.
Others likely stayed unemployed due to a lack of attractive employment options. The biggest labor shortages are in the service industries that took the biggest hits during the pandemic. It’s possible older workers balked and decided to retire early, Julia Pollak, a labor economist at job site ZipRecruiter, told Insider’s Juliana Kaplan in July.
Soaring stocks also made more people rich enough to retire. The number of 401(k) and individual retirement accounts holding at least $1 million soared to a record 754,000 in the second quarter, Fidelity said in an August report, up 75% from the year-ago level.
For all workers, the average 401(k) balance rose 24% to $129,300 from the year-ago period, Fidelity said. The average IRA balance climbed 21% to $134,900.
The latest Fed data suggests early exits are the new normal, not a pandemic-era oddity.
Unlocking the ‘golden decade’
The wave of pandemic retirements stands to overhaul the US economy.
For one, it freed up younger baby boomers to better enjoy their 60s (the oldest boomers turned 75 in 2021). The decade already covers the most common retirement ages, but it also serves as the “golden decade” for tax planning, according to tax experts at Aspire Planning Associates, because it’s old enough to retire and young enough to plan ahead to reduce tax costs.
Early retirements could also relieve some pressure on the labor market and force employers to shift their focus toward younger workers, as employers have grown increasingly reliant on older workers over the past two decades. While employment has been almost flat for workers younger than 55 since 2000, it’s grown by nearly 20 million employees for Americans 55 and older, according to the Bureau of Labor Statistics. Simply put, the US economy was increasingly reliant on workers less than a decade from the average retirement age.
The graying of the workforce is another piece in the puzzle of an America revealed by the 2020 census to be having fewer babies, with fewer workers around to power the economy. With Americans less likely to work into their 60s and instead take advantage of the golden decade, employers will have to look elsewhere for workers.
The search is already taking place. Job openings rose to 10.9 million in July, marking a fifth consecutive record high. That came despite the US adding 1.1 million payrolls that month, suggesting businesses are still struggling to rebuild their workforces. Employers will just have to find ways to get younger workers to do the jobs of older ones -or robots will have to pick up the slack.
Tell me a bit about your background and how you came to develop a “future of work” beat?
I joined Insider in January, and before that I was a reporter and editor at Bloomberg News for 10 years. At Bloomberg I covered economics and tech, so I was already writing a lot of stories at the intersection of these two topics – for example, how new technologies were changing the labor market.
With the shift to WFH in the pandemic, it felt natural to double down on the changing nature of work.
What are some of the biggest workplace trends that you’re following right now?
Anything related to the permanent transition to WFH. That’s involved not only employers’ overarching policies of whether and how often they’ll let employees work from home – but also changes in pay practices (will they reduce the salaries of workers who move away?) as well as perks and benefits for a remote workforce, and things like flexible work hours too.
I think a lot of things about work and the workplace are up for grabs right now, so it’s been really interesting watching companies announce all kinds of new policies. A lot of these initiatives haven’t been tried on a large scale before. I think we’re going to learn a lot about what works and what doesn’t over the next few years.
What’s a day in the life of Aki Ito like?
It depends on whether I’m writing or not. On days I’m writing, I’m holed up in our guest bedroom, where I’ve set up my home office. I try not to take any calls, and I try to stay off of Slack and email and Twitter (with varying degrees of success). My wife hates these days because I’m heady and grumpy when she comes home from work. I worry a lot that my story’s never going to come together. I read all my first drafts out loud to her before I send them to my editor, and she has the incredibly unpleasant job of telling me whether she thinks they’re any good or not.
When I’m not writing, my days are a combination of reading other outlets, talking on the phone with sources, catching up with colleagues, brainstorming new story ideas with my editor, and reading and replying to email. These are the days I take our puppy out to our local dog park more often too.
Tell me about a story that you’re most proud of.
I think it’s my recent story about the war over WFH. I had been wanting to write about companies backtracking on their post-covid WFH policies for a number of weeks, and it was when I saw the data from the economist Nick Bloom’s survey that I found a way to clearly articulate what’s going on – that workers, who want to work from home more often than their employers want them to, are winning.
What excites you about your job?
There’s so much about work that’s changing right now, and because of that, there’s been quite a bit of chaos, controversy, and confusion too. So it’s been fun and rewarding to be on this beat where so much is happening. My hope is to help our readers make sense of all this change in their jobs and their lives.
Job openings in the US rose to a record high for the fifth consecutive month in July as demand for workers still outpaced hiring.
Openings climbed to 10.9 million in July from 10.2 million, according to Job Openings and Labor Turnover Survey, or JOLTS, data published Wednesday. Economists surveyed by Bloomberg expected openings to dip to 10 million.
The print shows openings climbing for a seventh straight month. Openings shot higher through the spring as businesses faced unusual difficulty in hiring. The phenomenon – quickly deemed a nationwide labor shortage – was fueled by factors including enhanced unemployment benefits, school closures, and virus fears. As businesses prepared for reopening and a wave of spending, jobless Americans were in no rush to get back to work.
Openings rose at a slower pace through the summer as job growth boomed. The US added 962,000 jobs in June and another 1.1 million payrolls in July as vaccination and the reversal of lockdown measures supercharged the labor market’s recovery. The hiring frenzy slowed sharply in August, but the latest JOLTS data shows labor demand was still strong the month prior amid stellar job creation.
The available-worker-to-opening ratio fell to 0.8 in July, signaling there were more job listings than workers to fill them. The measure fell below 1 in June for the first time since the pandemic recession began. It’s unusual for the ratio to sit so low just one year after a historically dire economic slump.
A higher number of job openings than unemployed workers tends to come after years of economic expansion, but the huge number of unfilled job openings has quickly pulled the ratio to such low levels.
Struggling services and massive quits
Although the JOLTS report lags the government’s monthly jobs data by one month, it provides more context to how businesses fared and where job demand was strongest.
Openings rose the most in the health care and social assistance sector, with a gain of 294,000 listings. The finance and insurance sector added 116,000 openings, and the accommodation and food services sector followed with a 115,000-openings gain.
The data shows service-industry firms rushing to rehire as the economy fully reopened. In-person services were among the hardest-hit businesses early in the pandemic as economic restrictions froze business and powered mass layoffs. As case counts fell and lockdowns reversed through the summer, those businesses counted for the bulk of job gains as they struggled to recoup their workforces.
Quits rebounded in July to roughly 4 million, falling just short of the record high seen in April. July marked the fourth consecutive month nearly 4 million workers have quit, signaling unprecedented confidence in the labor market. Workers tend to hold on to their jobs when they think finding a new opening would be difficult.
With job openings consistently rising to record highs, the elevated quits data suggests workers are taking the opportunity to find more rewarding jobs or move into different sectors entirely.
The Federal Reserve has a number of functions and responsibilities, but the most important thing the central bank does is set monetary policy. I feel weird even needing to write that sentence, but given the increasingly tedious arguments I’m seeing for replacing current Chairman Jerome Powell, apparently some people need a reminder.
The problem for Powell’s opponents is that he has done a truly excellent job leading monetary policymaking during his tenure – both in crafting an effective response to the COVID-driven economic crisis that prevented it from snowballing into a financial crisis, and in implementing a longer-run shift of the Fed’s priorities to tolerate more inflation and focus more on promoting full employment and wage growth.
A lot of progressive commentators recognize how good this record is, which is why Powell, a Republican, enjoys quite a bit of progressive support for his reappointment, and why President Biden, a Democrat, will probably nominate him for another term. Powell’s progressive support comes especially from the parts of the movement with close ties to organized labor, which has good reason to be clear-eyed about pro-worker Fed policies being the key issue in choosing a chair.
And even those who oppose Powell mostly admit he has succeeded at the central bank’s core mission, which has led to them to contend the choice of a Fed chair is not primarily about monetary policy. They characterize his monetary policies as areas of consensus that any Democrat-appointed Fed chair could and would continue, while doing better on whatever niche issues the critics care about. (Or, if you want to be creative like Berkeley economist Brad DeLong, you can simply invent the idea that Powell secretly disagrees with the monetary policies he’s implemented for the last four years and will become totally different if reappointed.)
The truth is that the Fed’s monetary policy achievements under Powell have been real and large, are not automatic, and are fragile. You need someone with a commitment to pro-worker monetary policy at the head of the bank in the face of concerns about rising inflation. Who better than Powell himself, who has demonstrated both a commitment to the policy and an ability to gather political support for it and get it implemented?
You risk workers’ livelihoods by being blasé about monetary policy
Before we get to the niche issues, let’s talk about why Powell’s progressive critics are wrong to be so confident about the durability of his monetary policies.
One, they overstate the extent of the consensus in favor of the new, more-inflation-tolerant framework. Inflation is currently well above target, and calls for tightening to stave off inflation are getting louder. Members of the Federal Open Market Committee cannot even agree on what it means that the Fed now targets “average” inflation, or on how long the Fed should wait to raise interest rates in the face of rising prices. So the question of how much of an inflation overshoot the Fed will accept in order to boost the labor market is an open one – one where the left’s preferred candidates to replace Powell could end up favoring tighter, less worker-friendly policy.
Then there is the issue of political support for unconventional monetary policy.
Powell’s new policies are controversial, and his political skill has been necessary to sell them
People who have drawn the baffling conclusion that Powell’s monetary policy actions reflect a broad consensus that any Fed chair could have followed may been fooled by the fact that Powell makes the politics look easy. Powell has worked assiduously to build respectful relationships on both sides of the aisle on Capitol Hill, and the personal trust he has built has quieted political criticism and given the Fed more room to operate. (In just the first six months of this year, Powell took meetings with 33 senators.) It also helps that Powell is a moderate Republican with a staid, bankerly image – he has overseen a bold shift in monetary policy and yet he does not come off as a radical to anyone.
If you fire Powell and replace him with a Democrat, many of the policy issues Powell has successfully depoliticized will become politicized. Republican calls for tighter money will get louder under a new chair, and they’ll be more listened to – including by the ideologically diverse FOMC the new chair would need to get to agree to a monetary policy agenda.
That’s all reason to worry that even a new chair with solidly dovish views would end up making more hawkish policy than Powell would.
Bank regulation is less important than monetary policy, and the Fed is just one of many bank regulators
Okay, so what about the other issues? The bank regulation-focused Powell critics are upset about certain moves in recent years they consider to have been too easy on banks, such as letting them resume share buybacks after the financial markets had stabilized but before the COVID pandemic was over.
Bank regulation used to be a top-tier economic policy issue. Banks and households both took on too much leverage in the lead-up to the 2008 financial crisis, and risky lending was a key factor that created a terrible global recession. But policy improvements, including the Dodd-Frank law, have greatly improved the financial condition of banks. Household finances are also currently unusually strong. And of course, the Fed’s bold monetary policy actions were themselves an important policy for promoting soundness of the financial system, because they made it possible for firms to roll over debt instead of defaulting.
This overall environment of stability and soundness is why people whose personal brand is financial regulation have to hype the corporate debt markets so much: the most economically salient places for there to be too much leverage in the economy look fine, and you have to start looking under the cushions for sources of leverage-driven financial instability.
This is simply not a leading economic risk facing the country, especially in comparison to the risk that the Fed might choke off the labor market recovery by tightening monetary policy too soon. And the risks in this area can be addressed by other regulators, including the Fed’s own vice chair for supervision, a position that will be open for Biden to fill later this year.
The Fed is not a climate policy organ
As Matt Yglesias writes, there are a lot of professional activists, particularly in the climate change space, who seem to view their job as complaining about whatever the Democratic party is doing. If Democrats want Powell renominated, that must be a mistake, and there must be something more left-wing that can be found to do. This has led to a lot of Rube Goldberg thinking about how the Fed is supposed to be driving climate policy (as a reminder, we are talking about the central bank, not the EPA).
There are some perfectly worthy proposals about how the Fed should consider climate related risks when evaluating the soundness of the financial system, but the idea that this would constitute a significant climate change policy is wrong. As the Roosevelt Institute’s Mike Konczal notes, you can improve banks’ resiliency against climate change without doing anything at all about climate change itself – all you have to do is change what sort of investments are financed where.
Many of the people now telling us that bank capital requirements can significantly affect fossil fuel-related behavior in the real economy are the same people who spent the last decade-plus telling us that higher bank capital requirements won’t much affect the real economy. They were right the first time.
And if the Fed implemented policies that really did move the needle on carbon emissions, those policies would necessarily conflict with the Fed’s mandate to promote maximum employment. The climate-focused critics won’t say this in so many words. But Erik Gerding admitted to the Atlantic’s Robinson Meyer that he objects to the Fed’s low-interest-rate policies – a cornerstone of the Fed’s pro-worker efforts – on the grounds that they encourage carbon-intensive cryptocurrency mining.
Think about that for a second: Low interest rates only encourage crypto speculation because they have been good for asset prices in general. The crypto bubble (and I do believe it’s a bubble) is part of the overall bullish environment for investment that has businesses growing and investing and hiring, which is what’s been creating relatively positive conditions for workers.
Trying to pop the crypto bubble with higher rates in an attempt to curtail carbon emissions would also discourage investment overall, cooling the labor market and possibly causing a recession. If that’s what you want, you oppose full employment. And if it’s not what you want, then you’re just fiddling around the edges with bank regulations that will have little effect on either climate or the real economy.
Finally, let’s be real about the politics of climate change: If you run around telling people the Fed’s full employment policies are actually, secretly climate policies, you’re only going to undermine support for full employment policies. Climate policy is best done through Secret Congress; announcing that the Fed is now a climate-policy organ is the opposite of that.
Monetary policy doesn’t care whether you think it’s interesting
If I sound contemptuous of the people who want Powell fired, that’s because I am. He led by far the most effective policy response to COVID of any US government agency and significantly improved the framework for monetary policymaking in the US and now they want to put those policies at risk by getting rid of him. I think these attacks can only be explained as a matter of emotional impulses.
As I noted at the top, progressive figures who conceive of their project as fighting for workers have generally gotten Powell right. You see this with Bill Spriggs of the AFL-CIO, or Dean Baker of the Center for Economic and Policy Research: they have strongly endorsed Powell’s reappointment.
The thinkers who have gotten Powell wrong are the ones who conceive of their project as fighting against powerful forces, and as a result are constitutionally incapable of caring about monetary policy, because monetary policy does not provide an adequate villain to oppose.
With bank regulation, you can fight reckless and greedy Wall Street fat cats. On climate change, you get to stand up to big oil and gas companies. A worker-focused monetary policy produces very large benefits for ordinary people without defeating any obvious opponent. It does not provide that emotional oomph that drove many left activists to get involved with policy in the first place.
Sure, you can identify hedge-fund managers who grumble that the Fed’s actions to boost the economy are creating inflation and making it hard for them to find corporations willing to borrow money at 15% interest. But the same companies that are forced to pay higher wages and offer better conditions to attract workers in a tight market also enjoy strong consumer demand and an environment with attractive opportunities to invest and grow.
You only need to look at the stock market alongside the wage and job growth data to see that a hot economy is good for workers and owners alike – and a lot of people on the left clearly just don’t find it emotionally satisfying to focus on an economic policy that does not pit the rich against the masses.
And I understand why people prefer emotionally satisfying arguments to arguments about monetary policy, which is admittedly a boring subject. But it’s a pretty dumb thing to gloss over when you’re picking the head of a central bank.
US employers slammed the brakes on hiring last month. That has massive ramifications for the broader economic recovery.
The US added just 235,000 payrolls in August, according to data published Friday. That’s less than a third of the 733,000 jobs expected and the weakest month of job growth since January.
It also marks a massive slowdown from the promising growth seen just one month prior. July job creation was revised higher to 1.1 million, and June’s was also lifted to 962,000 new jobs. The deceleration in monthly job growth was so sharp, it added two months to the projections of when the US will reach pre-pandemic employment, according to Insider calculations.
Using the three-month moving average for US payroll growth, the jobs recovery is now expected to arrive in April 2022. By comparison, July’s stellar report shortened the projected recovery by four months, to land on February 2022.
The August report alone paints an even bleaker picture of the future.
If last month’s pace of hiring continues into the fall, it will take nearly two more years to return to the employment levels seen in February 2020.
And the full-recovery forecast only places payrolls at the highs seen before the pandemic. Job growth was trending at roughly 200,000 new payrolls per month before the crisis. The labor market is down roughly 5.3 million jobs from pre-pandemic levels, but returning to the early 2020 trend will require adding some 8.7 million jobs, Insider calculated.
Signs point to job creation floundering in the coming months.
The August report’s survey period ended halfway through last month, and virus cases have only risen in the weeks since. With the health situation worsening, subpar September data is likely in the cards, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.
“This is just the start of the Delta hit,” he added. “September likely will be weak too, and we’re becoming nervous about the prospects for a decent revival in October, given that behavior lags cases, and cases are yet to peak.”
An even harsher Delta wave stands to further slam the sectors that were previously leading the jobs recovery. Hiring was flat in the leisure and hospitality sector in August after average monthly gains of 350,000 payrolls the previous six months. Restaurants and bars shed 42,000 payrolls, and retailers lost 29,000 jobs.
Those sectors were the hardest hit by the pandemic’s onset last year, and the August report suggests the Delta wave is powering yet another slump.
The benchmark S&P 500 on Tuesday ended higher for the seventh consecutive month, the longest winning streak since January 2018.
The ADP report was released before Friday’s release of August jobs data from the Labor Department.
“The private payrolls numbers have been all over the map during the pandemic, and often not the strongest indicator of how the rest of the jobs report will play out,” Mike Loewengart, managing director of investment strategy at E-Trade Financial, told Insider in a note. “But with so much pressure on improvement on the labor market front coming from the Fed, this could send a signal that jobs growth is stagnating. That’s likely a good thing for the markets though as it means easy money policy continues.”
Hiring by private-sector US businesses fell well short of expectations in August amid rebounding COVID cases and the return of some mask-wearing orders.
Private payrolls rose by 374,000 last month, ADP said in its monthly employment report. That missed the 613,000-payrolls estimate from economists surveyed by Bloomberg. While it did show a pickup from July’s 326,000-payroll gain, it’s still the second-smallest increase since February.
The August report shows the labor market struggling to recover as COVID cases surged higher. Daily case counts reached their highest since January last month as the Delta wave intensified across the country. The increase also led state and local governments to reimpose some mask-wearing rules, marking an abrupt ending to the reopening experienced through spring and early summer.
“The Delta variant of COVID-19 appears to have dented the job market recovery,” Mark Zandi, chief economist of Moody’s Analytics, said. “Job growth remains inextricably tied to the path of the pandemic.”
The print also suggests some states’ early cuts to federal unemployment benefits did little to push Americans into the workforce. Twenty-six states prematurely ended the federal government’s boost to unemployment insurance in a bid to accelerate hiring. While the move was meant to counter the labor shortage, recent studies suggest it did more harm than good, hurting spending and only slightly improving hiring, Insider’s Juliana Kaplan reported.
Other measures of the labor market’s rebound show a healthier rate of improvement. Weekly filings for unemployment benefits steadily fell through August and sit just above their pandemic-era low. Continuing claims, which track Americans receiving jobless benefits, fell to 2.86 million for the week that ended August 14. That’s the lowest since March 2020, when claims first spiked higher.
And economists expect the government’s payrolls data to show stronger August hiring than ADP’s. The Friday report is forecasted to show a 700,000-payroll gain, and the unemployment rate is expected to slide to 5.2% from 5.4%.
Hiring in the age of Delta
Once again, the leisure and hospitality sector counted for the bulk of the month’s job gains, with businesses adding 201,000 payrolls through August. Education and health services firms followed with a 59,000-payroll increase. The strong gains continue a trend of the hardest-hit sectors seeing the fastest hiring through the recovery.
Medium-sized businesses – those with 50 to 499 employees – counted for 149,000 of the month’s added payrolls. Businesses with more than 500 employees added 138,000 jobs, and those with fewer than 50 workers added 86,000 payrolls.
Three trends are set to guide the labor market’s rebound through the second half of 2021, Nela Richardson, chief economist at ADP, said. The Delta wave presents the greatest near-term risk to the recovery. Service businesses are doing “most of the heavy lifting” in hiring, but the new variant creates uncertainty that will likely weigh on job creation, she said.
The rebound in virus cases is also sending consumer confidence into a downward spiral. The University of Michigan’s consumer sentiment index tumbled to 70.2 from 81.2 in early August, its lowest level since 2011 and the biggest one-month drop since early in the pandemic. That decline will most dramatically hit job growth at businesses that require close physical proximity like airlines and restaurants, Richardson said.
The third trend is more encouraging. Labor demand remains strong, with job openings still at record highs and wages rising at a healthy pace. Demand for workers should serve as a “positive counterbalance” to the Delta wave and waning confidence, Richardson said. But the months-long labor shortage suggests worker supply won’t swiftly meet demand.
Letting federal unemployment benefits expire in September will do far more harm to the US than good, the Brookings Institute said Wednesday.
Critical support for some 7.5 million unemployed Americans currently hangs in the balance, according to estimates from the left-leaning Century Foundation. A handful of federal programs that boost unemployment insurance are set to expire on September 6, cutting off aid that’s been in place since the CARES Act was approved in March 2020.
President Joe Biden has already punted the issue to Congress, and lawmakers are unlikely to renew the programs over the next two weeks. Rep. Alexandria Ocasio-Cortez told Insider’s Joseph Zeballos-Roig this week that progressives are “looking into” an extension, but she said it won’t happen before Labor Day and the Senate and White House seem reluctant to extend.
Letting it lapse is a mistake, and its consequences will ripple throughout the economy, Annelies Goger, a fellow at Brookings’ Metropolitan Policy Program, wrote. It’s “too soon” for the federal programs to lapse, and arguments in support of a September expiration are short-sighted, she added.
She laid out three reasons why, in her words, it’s just too soon to end it.
1. It just isn’t the reason for the labor shortage
Geiger dismissed the criticism that the UI boost exacerbated the nationwide labor shortage.
There is simply “little evidence that higher pandemic UI benefits have been a major source of employers’ problems in finding workers, or that those difficulties are widespread,” she wrote. Likewise, she said little evidence supports the argument that cutting it early increased employment.
Conservative lawmakers have railed against the aid for months, saying it disincentivized Americans from taking jobs and fueled lackluster hiring in the spring. The argument also led 26 states – all but one led by Republican governors – to prematurely cut the federal supplement.
The move was marketed as a way to push Americans into the workforce, but recent data suggests it had negative effects. Researchers found the cutoff led to a 20% drop in individuals’ spending, and total spending dropped by $2 billion in states ending the benefit early. At the same time, just 4.4% more workers in early-out states had jobs compared to peers in states keeping the boost intact.
2. The safety net isn’t fixed yet
Letting the benefit expire in September would also leave several problems with the UI program unfixed, according to Goger. Each state runs its own UI system, leaving the safety net “riddled with inequities, cumbersome processes, and outdated technologies.”
For one, several kinds of workers were left out from traditional UI. Domestic and agricultural workers weren’t able to benefit, and gig workers have only been included as a pandemic-era exception. The programs also exclude people who just started paid employment, reduced their work hours, or faced disruptions that cut into their ability to work, Goger said.
Differences between states’ programs also harm workers, hurting racial minorities and the long-term unemployed the most. The country’s poorest are frequently trapped in joblessness without adequate support, Goger said.
Reverting to pre-pandemic UI systems next month would doom the programs to suffer the same problems they’ve had for decades, Goger said, while replacing the state programs with a single federal system could allow for more equitable and efficient unemployment insurance.
(3) It will make inequality worse and hurt the economy
Doing nothing on UI would also worsen inequities throughout the economy, she added.
The benefit helped some of the hardest-hit Americans stay afloat, but most are still far from fully recovered. The labor shortage suggests swaths of workers are changing careers, and removing the UI safety net amid that shakeup could throw millions into economic disarray. Keeping the program intact would ensure those transitions can safely take place, especially when the Delta wave is slowing the pace of recovery, Goger said.
She wrote that the “broader ecosystems of safety net programs, services, data, and prevention strategies are critical infrastructure for a well-functioning, more inclusive economy,” and that ought to be the point of unemployment insurance. The job is unfinished.