Job openings climb to record highs in May as the worker shortage charges on

Starbucks Now Hiring sign
A ‘We’re Hiring!’ sign is displayed at a Starbucks on Hollywood Boulevard on June 23, 2021 in Los Angeles, California.

  • US job openings rose to 9.21 million from 9.19 million in May, marking another record high.
  • Economists expected openings to hold at 9.3 million. The reading still marks a fifth straight jump.
  • Openings matched the number of jobless Americans for the first time since the pandemic began.
  • See more stories on Insider’s business page.

Job openings in the US edged higher in May as businesses continued to jostle over an unusually small supply of workers.

Openings rose to a record-high 9.21 million from 9.19 million last month, according to Job Openings and Labor Turnover Survey, or JOLTS, data published Wednesday. That landed below the median estimate of 9.33 million from economists surveyed by Bloomberg.

Job listings climbed for five straight months as vaccination began and reopening led businesses to hire. The May increase in openings also came as hiring rebounded after dismal growth in April. Taken together, the data suggests the nationwide labor shortage grew somewhat less intense as the US entered summer.

June’s payrolls data further supports the outlook. Job creation improved again, with the US adding the most payrolls since August. Still, the unemployment rate ticked slightly higher and labor force participation held steady, implying continued slack in the job market.

Experts largely expect the labor market’s recovery to accelerate further through the summer as various factors keeping Americans from work fade. The start of the school year should ease childcare pressures and the ending of enhanced unemployment benefits should also boost participation, Federal Reserve Chair Jerome Powell told lawmakers in June. There also “may be a bit of a speed limit” on matching people with openings, but that process should play out into the fall, he added.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” he said in June 16 press conference. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

Hiring, layoffs, and job availability

The monthly JOLTS data – which lags the corresponding jobs report by one month – provides even more detail around pandemic-driven dislocations in the labor market. The survey took on even more relevance as the labor shortage emerged, giving economists insight into which pockets of the economy are struggling the most to rehire.

Broadly, there was an opening for every available worker in May, compared to 1.1 in April. The ratio shows the US boasting as many openings as workers for the first time since the COVID-19 recession began. By comparison, it took roughly 8 years after the financial crisis for openings to match workers.

The state and local government education and educational services sectors added the most openings, with gains of 46,000 and 35,000, respectively. The arts, entertainment, and recreation sector lost the most openings with a decline of 80,000.

Quits, which soared to all-time highs in April, fell slightly to 3.57 million from 3.99 million. Quits were most common in the professional and business services sector. While down from the April reading, the elevated quits count signals Americans are confident in their abilities to find better jobs as the economy recovers.

Layoffs also fell slightly to 1.37 million from 1.45 million. The layoffs rate dipped to a record-low 0.9%.

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Now may be the time to ask for a raise because soaring pay is temporary

Fight for 15 minimum wage protests
Days ahead of Andy Puzder’s confirmation hearing for labor secretary. Several of workers in the fight for $15 took their opposition to downtown New Yorks McDonald during the lunchtime rush to demand the fast-food mogul withdraw his nomination or be rejected by the U.S. Senate. The protest in New York is one of more than two-dozen rallies across the country on Monday to declare that Puzder is unfit to serve.

  • Stronger wage growth will likely cool off as the labor shortage fades.
  • Firms hiked wages to attract workers, but school reopenings and unemployment expiring should push people back to work.
  • Ending the pay-growth streak could be critical to avoiding an inflation crisis, Goldman Sachs said.
  • See more stories on Insider’s business page.

Working Americans are enjoying the biggest pay boost in four decades. Experts don’t expect it to last long.

Wage growth over the last three months hit an annualized rate of 6.6%, the strongest since the early 1980s. Job openings sit at record highs, and the number of job listings mentioning signing bonuses doubled in the past year. Businesses are clamoring for labor, and workers are reaping the benefit.

Much of the pay bump is linked to the nationwide labor shortage. While firms looked to quickly rehire, factors ranging from childcare costs to virus fears kept Americans out of the workforce.

Those trends might only boost workers’ bargaining power for a few more months. Hiring will accelerate into the fall as schools reopen, vaccination continues, and enhanced unemployment benefits lapse, Federal Reserve Chair Jerome Powell told lawmakers in a June 22 hearing.

The influx of the supply of new workers is likely to erode the fast pace of wage growth. Pay hikes seen in recent months made for an extraordinary shift for low-wage workers, but they are more a “one-time releveling” than a “permanent shift in workers’ bargaining power,” said Gregory Daco, chief US economist at Oxford Economics.

Democrats seem to see the writing on the wall. While President Joe Biden praised rising wages as a “feature” of the economic recovery, he’s also urged Congress to pass legislation solidifying workers’ right to unionize so that when firms naturally cool their wage hikes, workers can lock in gains made through the spring, Democratic Rep. Andy Levin told Politico.

“I think the gains of workers will be evanescent,” he said. “For it to be durable, they’re going to have to regain the freedom to form unions and bargain collectively.”

Slowing the pay jump keeps inflation at bay

Hitting the brakes on worker pay might be coming at the perfect time. While the pandemic’s threat has largely faded, inflation quickly replaced it as the country’s largest economic risk. The latest data showed prices climbing at the fastest rate since 2008 in May as massive demand slammed up against widespread supply bottlenecks.

Most economists and government officials see the overshoot as transitory and cooling throughout the year. Yet persistently strong wage growth could turn the temporary inflation permanent. After shelter prices, low-wage sectors like restaurants are the second-clearest contributor to wage-based inflation, Goldman Sachs said in a recent note. Prices at such businesses could be “the canary in the coal mine of wage-push inflation” and serve as a “key cyclical wild card” in the bank’s inflation outlook, the team led by Jan Hatzius added.

That dynamic might already be at play. Chipotle, McDonald’s, and Starbucks all raised their starting wages in the last year, putting pressure on competitors to do the same or risk losing workers.

If that trend turns widespread, rising labor costs could keep inflation elevated longer than expected. For every 1 percentage point that low-end wage growth exceeds its trend, core inflation is projected to rise by 5 to 15 basis points, the Goldman economists said. The effect is only “moderate,” they added, but with inflation already trending at decade-highs, an additional push could spark a cycle of higher prices and subsequent wage hikes.

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The economy is getting better, but the rest of 2021 will be far from normal

Job fair Florida
A man hands his resume to an employer at the 25th annual Central Florida Employment Council Job Fair at the Central Florida Fairgrounds.

  • The 2021 economy has been a wild ride with reopenings, people quitting jobs, and firms desperate to hire.
  • Economic data points to improvements in the second half of the year as wages rise and jobs increase.
  • But not for everyone. Unemployment for teenagers and Black and Hispanic workers is still high.
  • See more stories on Insider’s business page.

Halfway through 2021, the June jobs report signals a good step forward, but let’s not call this economy “normal” just yet. Things are still kinda weird.

The US added 850,000 jobs last month, beating estimates and showing a strong acceleration in the labor market’s recovery. It was the largest one-month jump since August and the sixth straight month of gains. After a bumpy six months for the labor market’s recovery, it’s starting to look like smoother sailing.

But it’s still choppy. While the sectors that transitioned to remote work have regained almost all lost jobs, those hit hardest remain far from healed. And while pandemic lockdowns have reversed, businesses will have to rehire in a wholly new environment.

The first strange signs for the economy came in April, when vaccinations were running ahead of schedule and reopening started in earnest. The jobs report that month was expected to show 1 million payrolls added, but it was a paltry quarter of that figure. Job openings sat at record highs, but factors ranging from virus fears to childcare costs kept workers on the sidelines. It was better than fears of a double-dip recession – when jobs unexpectedly dropped in December – but it was decidedly abnormal.

As the country reopens, the post-pandemic labor market is taking shape. It has little in common with the one left behind in early 2020.

An early look at the new job market

Working from home redefined employment, real estate, even culture in 2020. It’s shrinking back from its widespread adoption, but it may be here to stay. Despite many state and local governments reversing their strictest economic restrictions, roughly 14% of Americans still telecommuted in June.

The labor shortage remains an obstacle for businesses looking to hire, and it’s having an effect on workers’ pay. Average earnings climbed again in June. Pay grew the most in the leisure and hospitality sector, suggesting higher pay helped businesses hire more workers.

On the other end of the market, only 10% of job seekers are urgently looking for work, according to hiring giant Indeed. Most are taking a more leisurely approach, citing virus fears and financial cushions. June data reflects that relaxed pace; the number of people actively looking for a job was flat and the unemployment rate edged higher to 5.9%.

And while job growth broadly improved in June, the recovery is still leaving several groups behind. Despite a hiring bonanza for low-wage jobs, unemployment among teenagers rose to 9.9% from 9.6%. Unemployment among Latinos rose 0.1 point to 7.4%, while Black unemployment gained to 9.2% from 9.1%. That compares to the 5.2% unemployment rate seen among whites.

Relief programs for unemployment and student loans are about to end

There’s reason to believe Americans will take more jobs in the months ahead.

Several states are just starting to end the federal boost to unemployment insurance (UI) ahead of its September expiration. Twenty-six states in total – all but one are Republican-led – are set to end the benefit early in an effort to spur hiring. And jobless claims data suggests the effort is working. Filings for UI fell to a new pandemic-era low last week.

Other government relief programs, including the student-loan freeze, are also set to lapse in the fall. Economists refer to the deadline as a “fiscal cliff” and expect it to drive more Americans into the workforce.

Continued vaccinations, school reopenings, and reskilling should have a similar effect, Federal Reserve Chair Jerome Powell said in a June 16 press conference. Childcare costs and virus fears kept countless Americans at home, unable to find work. As those pressures diminish in the coming months, it’s likely worker supply will more closely match labor demand, Powell said.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” he added. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

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June jobs report trounces expectations with 850,000 payroll gains as labor-market recovery picks up

Job interview california
Ray Liberge, 48, of Lawndale, talking to Jacky Estrada, the human-resources manager for the Zislis Group, after getting hired as a line cook at Rock’N Fish in Manhattan Beach, during a job fair at The Brews Hall in Torrance.

  • The US added 850,000 payrolls in June, beating the median estimate of a 720,000-payroll gain.
  • The unemployment rate rose to 5.9% from 5.8%. The median estimate was for a drop to 5.6%.
  • The payrolls increase is the largest since August and marks a sixth straight month of additions.
  • See more stories on Insider’s business page.

Hiring accelerated again in June as Americans returned to the workforce and reopening further juiced demand.

The US economy added 850,000 nonfarm payrolls last month, the Bureau of Labor Statistics announced Friday. The median estimate from economists surveyed by Bloomberg was for an increase of 720,000 jobs. The data suggests the labor shortage waned as businesses raised pay to attract workers.

The June print marks the strongest month of job growth since August and the sixth consecutive month of payroll additions. May payroll additions were revised to 583,000 from 559,000.

The unemployment rate rose to 5.9% from 5.8%. Economists expected the headline rate to hit 5.6%.

The labor-force participation rate was unchanged at 61.6%. The metric has become the go-to gauge for tracking the nationwide labor shortage. Hiring unexpectedly slowed through the spring as virus fears, childcare costs, and enhanced unemployment insurance kept Americans from seeking work. Firms have since raised wages to pull in job applications.

Average hourly earnings rose again, by 10 cents, to $30.40. The gain signals firms still lifted wages into the summer to speed up their hiring efforts.

“This pace of progress is solid and it looks like things can get even better,” Nick Bunker, an economic research director at the hiring website Indeed, said. “There’s still quite a bit of damage left to repair, but today’s report suggests that we may rebuild sooner rather than later.”

Snapshot of recovery

The monthly BLS report is among the most detailed snapshots of the labor market’s performance and gives new insights as to how the broader economy is recovering.

Even after the month’s stronger hiring, about 9.5 million Americans remain unemployed. Total payrolls are still about 6.8 million shy of their pre-pandemic peak.

The U-6 unemployment rate – which counts Americans working part time for economic reasons and those marginally attached to the workforce – rose to 10.1% on an unadjusted basis from 9.7%.

Gains were largest in the leisure-and-hospitality and accommodation sectors, where businesses added 343,000 and 75,000 payrolls, respectively. In leisure and hospitality, restaurants and bars counted for more than half of the gain.

The construction industry lost the most jobs, with a decline of 7,000 payrolls.

Roughly 6.2 million Americans named the pandemic as the primary reason their employer ended operations, down from 7.9 million. About 1.6 million cited the pandemic as the main reason they didn’t seek work, down from 2.5 million in May.

The share of Americans telecommuting fell to 14.4% through the month. That compares with the May share of 16.6%.

Experts see encouraging growth through the 2nd half

June stands to represent a turning point for the labor market’s recovery. The month saw the first few states end the federal boost to unemployment insurance ahead of its September expiration. Twenty-six states – all but one governed by Republicans – have announced plans to prematurely cancel the benefit, saying the move should encourage Americans to return to the workforce.

While the set of cancellations aren’t reflected in the June jobs report, jobless claims data out Thursday suggests the plan is working. Filings for unemployment benefits fell to 364,000 last week, beating economist estimates and marking a new pandemic-era low. Continuing claims still rose, suggesting Americans on unemployment insurance weren’t yet rushing to find jobs.

Survey data backs that up. Just 10% of surveyed job seekers urgently sought work in late May and early June, Indeed said. The most cited reasons for the slow return to work were virus fears, employed spouses, and financial cushions.

Those factors keeping Americans from taking jobs should fade as schools reopen and vaccination continues, Federal Reserve Chair Jerome Powell said. Americans can look forward to “strong job creation building up over the summer and going into the fall,” he told reporters during a June 16 press conference.

He added that while hiring stumbled in April, some of the slowdown was most likely caused by a skills mismatch between workers and open jobs. There “may be something of a speed limit” on the recovery as people look for work in new areas, Powell said.

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Only 10% of job seekers are rushing back to the workforce, hiring giant Indeed says

Job fair coronavirus florida
  • Just 10% of job seekers are urgently looking for work as firms rush to rehire, according to Indeed.
  • Virus fears and employed spouses were the most common reasons cited for non-urgent job searches.
  • More Americans should return to work as schools reopen and COVID fears fade, economist Nick Bunker said.
  • See more stories on Insider’s business page.

Businesses are jostling to rehire faster than their competitors as demand booms. The vast majority of jobless Americans can’t be bothered.

For several months now, an extraordinary labor shortage has held back the economic recovery, as job openings rocketed to record highs, but hiring has fallen below economist forecasts. More than 9 million Americans remain out of work, but for reasons ranging from enhanced unemployment insurance to childcare costs, they’re in no rush to find jobs.

New data from hiring website Indeed adds to this picture. Just 10% of job seekers were “urgently” looking for work in late May and early June, according to a survey of 5,000 Americans. About 30% said they’re not open to searching for work at all, and over 40% said they’re only “passively” looking for jobs.

INDEED
Source: Indeed Hiring Lab

Some of the disparity comes from many job seekers already working, Nick Bunker, economic research director at the Indeed Hiring Lab, wrote in a blog post. The share of Americans urgently seeking work was twice as large for jobless Americans as it was for employed people. And many more employed Americans were passively looking for work.

The survey also debunked some theories as to what’s keeping Americans from rushing back to work. Among those not urgently seeking jobs, more than 20% cited virus fears as a reason for the holdup. Employed spouses and financial cushions were the second- and third-most cited reasons, respectively.

Less than 10% of respondents said enhanced jobless benefits were a reason for their lax job hunts, according to the survey. That stands in contrast with a top Republican talking point through the spring. GOP lawmakers frequently blamed UI payments for weak job take-up, and Republican governors in 25 states have moved to end the supplement before its September expiration.

To be sure, Indeed’s survey was conducted just before some states began rolling back the federal UI boost. But the data signals other factors played a much larger role in keeping Americans from joining the workforce.

Others are simply waiting for circumstances to improve. Nearly 30% of unemployed workers not searching urgently said they’re waiting for vaccinations to increase before seeking jobs. Another 30% said they’re waiting for more job opportunities, and 13% said they’re waiting for schools to reopen.

Indeed isn’t the only firm finding a wide range of factors keeping Americans from taking jobs. The pandemic fueled disruption throughout the labor market, making rehiring much more difficult than just placing Americans where they previously worked, Julia Pollak, a labor economist at ZipRecruiter, told Insider’s Juliana Kaplan.

“Some workers think their industry will never recover, and retire early. Others take a layoff personally, and opt not to return if they’re recalled,” she said. “That means returning to work requires a lot of new hiring – which is time-consuming.”

The combination of factors suggests job seeking will grow more urgent in the fall, Bunker said. After a months-long gap between business demand and worker interest, the labor market should balance out as the economy heals further.

“Many employers want to ramp up hiring quickly, but a large portion of job seekers are hesitant to start jobs now,” he said. “The further decline of COVID-19, the end of enhanced UI, and the return of school in the fall are factors that could increase the intensity of job searches by the unemployed.”

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If you’re making minimum wage, inflation means your dollar is the weakest it’s been in more than a decade

McDonald's fight for $15 wage
An employee of McDonald’s protests outside a branch restaurant for a raise in their minimum wage to $15 an hour, in Fort Lauderdale on May 19, 2021.

  • Wages are rising at their fastest rate since the 1980s, but it’s not enough to keep up with inflation.
  • The real federal minimum wage sits at the lowest since 2008 and is nearing multi-decade lows.
  • While Americans are earning more as businesses lift pay, soaring prices are leaving their dollars weaker.
  • See more stories on Insider’s business page.

For Americans earning the minimum wage, surging inflation is making their dollar the weakest it’s been in more than a decade.

On the surface, the labor market seems to finally be benefitting low-income workers. Wage growth surged to the fastest pace since the 1980s through April and May. Businesses are increasingly using signing bonuses and other incentives to attract workers. And quits soared to a record high in April, suggesting Americans are confident in their chances at finding a better job.

But that encouraging trend is reversed – and then some – by booming inflation seen through reopening. Price growth has accelerated to its fastest one-year pace since 2008 as a wave of pent-up demand runs up against widespread shortages and production bottlenecks. After accounting for the broad upswing in consumer prices, the minimum wage is the weakest it’s been since 2008.

The rate of decline has also accelerated through spring, suggesting the real minimum wage could soon breach multi-decade lows.

To be sure, economists largely expect inflation to cool as the country settles into a new normal and bottlenecks are resolved. President Joe Biden backed the outlook again on Thursday, saying he expects price growth to “pop up a little bit and then come back down.”

The size of that pop remains up for debate, and Federal Reserve officials are bracing for a larger upswing than previously expected. Members of the Federal Open Market Committee expect inflation to average 3.4% this year before falling to 2.1% in 2022, according to median projections published June 16. That compares to the March forecast of 2.4% inflation in 2021.

The faster rate of inflation and tumbling real wage could put new pressure on lawmakers and businesses to raise wages, Morgan Stanley economists said Monday. Despite average earnings soaring in recent months, 79% of industries are still seeing inflation outpace wage growth. And those who are benefitting most are middle- and high-income Americans, according to the bank.

The trend could intensify the push for higher wages, particularly for those at the bottom of the pay scale, the team led by Ellen Zentner said.

“While hard to know exactly how these political forces impact wage growth in the short term, we suspect this is a longer-term tailwind toward rising and broadening wage growth,” they added.

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One chart shows the 10 industries poised to pay you a higher salary soon, and the 10 that probably won’t, according to Morgan Stanley

Hotel bellboy coronavirus
A bellman waits for residents at the Plaza Residences on Central Park South on April 02, 2020 in New York City

  • The labor shortage is uneven, leaving some industries more likely to raise wages than others.
  • The hotel, restaurants, and leisure sector is most likely to raise pay, Morgan Stanley said Monday.
  • Independent power and renewable electricity businesses are the least likely to hike wages, the bank added.
  • See more stories on Insider’s business page.

Like many aspects of the US recovery, the labor shortage is uneven.

Where some industries were able to quickly shift to telework and retain most employees through the pandemic, others are struggling to rehire. Job openings sit at a record-high 9.3 million, but hiring lagged economist forecasts for two months straight while quits reached all-time highs.

Several businesses have already raised wages in a bid to attract more workers than the competition. Yet certain sectors are still likely to see additional pay hikes as the shortage lingers, Morgan Stanley economists led by Ellen Zentner said in a Monday note.

“Wage pressures to-date have been relatively narrow, but our leading indicators point to labor market tightness in an increasing number of industries, raising the prospect of further wage increases and broadening out of wage pressures,” the team said.

Wage Pressures MS
Chart via Morgan Stanley.

Hotels, restaurants, and leisure businesses came out on top, with real estate management and development following close behind. Commercial services and supplies businesses touted the third-highest wage-risk score. Morgan Stanley homed in on which sectors are most likely to raise wages first by analyzing companies’ earnings-per-employee, estimated margins, and historic wage growth.

The sectors at the greatest risk of wage hikes shared a handful of characteristics. Many were among those hit hardest by the pandemic and related lockdowns. The top 10 sectors mostly consisted of service jobs, likely due to the mass layoffs seen in 2020. Retail businesses also face higher wage risk as consumer demand booms and businesses struggle with supply bottlenecks.

On the other end of the spectrum, producers make up most of the sectors with the softest wage risk. Independent power and renewable electricity businesses sit at the bottom of the list, followed by the oil gas and consumable fuel sector. Water utilities, tobacco, and telecom services businesses were all nearly tied for having the third-lowest wage risk.

Morgan Stanley also expects a larger share of sectors to drive wages higher. While 64% of industries saw above-trend pay growth since March, that share grew to 93% in April and reached 79% in May. A deeper look at industry-specific data shows wage pressures growing in middle- and high-wage industries, marking a departure from trends seen just before the pandemic, the team said.

Still, the elevated rate of wage growth might not be felt in the near term. Most industries’ pay hikes have been dwarfed by stronger inflation through spring. Only 21% of sectors saw pay climb faster than the Consumer Price Index in the three months through May, Morgan Stanley said. For workers to actually benefit from the faster-than-average pay growth, businesses will need to keep raising wages after the anticipated cooling of inflation.

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Biden whispers the quiet part out loud on the labor shortage: ‘Pay them more!’

Biden
President Joe Biden.

  • The solution to attracting workers is to simply “pay them more!” Biden whisper-shouted on Thursday.
  • Massive demand for workers gives Americans a new “bargaining chip” for earning higher pay, he added.
  • The comments come as businesses are hiking wages and offering incentives as they scramble to rehire.
  • See more stories on Insider’s business page.

The solution to the labor shortage is, according to President Joe Biden, as simple as a higher wage.

The president allayed a range of concerns around the economy during a Thursday press conference. Among them is the nationwide labor shortage, which has seen hiring slow despite millions of Americans still being unemployed. The shortage may be delaying a full labor-market recovery, but he told journalists at the White House there’s an easy solution.

“I remember you were asking me … ‘Guess what? Employers can’t find workers.’ I said, ‘Pay them more!'” the president said in his distinctive whisper-shout.

The refrain has been popular with Biden as businesses rush to attract workers. The president said in May that the accelerating rate of wage growth was a “feature” and “not a bug” of the post-pandemic economy. Increased competition between employers gives Americans more “dignity and respect in the workplace,” he added.

“This is the employees’ bargaining chip now,” he said on Thursday. “[Employers] are going to have to compete and start paying hard-working people a decent wage.”

The president also eased fears that recent bouts of stronger inflation would hinder the recovery. The Consumer Price Index – a popular gauge of broad inflation – rose 0.6% in May, beating the median estimate of a 0.4% gain. The reading marked the fastest rate of price growth since 2009, but Biden assured the overshoot would soon fade.

“The overwhelming consensus is it’s going to pop up a little bit and then come back down,” he said.

The president’s comments were made during a press conference focused on the $1 trillion bipartisan deal for infrastructure spending that Biden had thrown his support behind earlier on Thursday. The plan includes funding for physical infrastructure like roads and bridges, as well as improved broadband access and public transit projects.

The package represents just half of the White House’s economic plan, Biden said during the afternoon press conference. The other portion will focus on improving childcare, education, and clean energy projects. Both proposals will move through Congress “in tandem” and represent Biden’s next steps for building a stronger economy.

“If it turns out that what I’ve done so far – what we’ve done so far – is a mistake, it’s going to show,” the president said. “If that happens, my policies didn’t make a lot of sense. But I’m counting on it not.”

Biden has long advocated a $15 minimum hourly wage, but opposition from Senate Republicans and even some Democrats has kept such legislation from reaching his desk. Still, elements of his $1.9 trillion stimulus package may have achieved a similar effect. The $300-per-week boost to jobless benefits led unemployment insurance to compete with the average wage in every state, Insider’s Andy Kiersz calculated.

Twenty-six states have since announced plans to prematurely end the benefit in hopes of pushing more Americans to find work. Yet early job-search data suggests the move is doing little to spur employment. And some jobless Americans told Insider in May that, after receiving generous UI payments for several months, they don’t plan to return to low-paying jobs.

“These guys are just dumbasses if they actually think that the UI is the problem and not the wage,” Matt Mies, an unemployed 28-year-old, told Insider’s Juliana Kaplan, referring to Republican governors ending the benefit early.

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The government is pursuing ‘maximum employment’ for the first time. Here’s how it differs from ‘full employment’ and the risks it brings.

Now Hiring Sign
A pedestrian walks by a now hiring sign at Ross Dress For Less store on April 02, 2021 in San Rafael, California.

  • The Fed is targeting “maximum” employment over “full” employment in a major shift for the US economy.
  • The new goal aims to bring forth a more equitable rebound, particularly for minorities and low-income households.
  • This focus tests how many Americans can be hired before an inflationary spiral is set off.
  • See more stories on Insider’s business page.

Maximum employment. Full employment. They may seem to be similar phrases, but they are dramatically different, in ways that could shape the US economy long after the pandemic ends.

After decades of adhering to an agreed-upon employment threshold called full employment, the Federal Reserve is trying a new playbook. In August, the central bank replaced this goal with “maximum employment” as part of a new policy framework.

Whereas the previous target sought to minimize deviations when employment was too high or low, the Fed now aims to “eliminate shortfalls of employment from its maximum level,” Governor Lael Brainard said in February.

Put another way, the central bank will push for a labor market that doesn’t just feature low unemployment, but also inclusivity and healthy wage growth. The new mandate sounds encouraging. But to achieve it, the Fed is entering uncharted territory.

How much unemployment can you have with low inflation?

The previous threshold for low employment rested on a concept known as the non-accelerating inflation rate of unemployment (NAIRU), which represents a level of unemployment at which inflation doesn’t spiral out of control. Though the true rate is unknown, the Congressional Budget Office estimated it stood at roughly 4.5% in 2020.

NAIRU served as a loose guide for the Fed as the US recovered from the Great Recession, but it didn’t quite work. The labor market’s recovery from the financial crisis was, and remains, the longest of any recovery since World War II.

Since the start of the coronavirus recession, Fed officials made it clear they weren’t going to use the same strategy. The Fed’s new framework seeks inflation that averages 2% over time. That opens the door to periods of stronger inflation.

Prematurely retracting monetary support can leave underserved communities hurting and set the US back for years, Fed Chair Jerome Powell said following the FOMC’s March meeting. By allowing for a brief period of elevated inflation, the central bank believes it can power a faster and more equitable labor market recovery.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” Powell said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

The maximum-employment experiment is uncharted territory

Despite Powell’s repeated messaging that stronger inflation will prove largely “transitory,” some economists slammed him for risking a dangerous inflationary spiral. Letting inflation run above 2%, they say, can spark a cycle of soaring prices that would cripple the still-recovering economy.

Keeping rates near zero into 2023 “seems to me at the edge of absurd,” Larry Summers, a former Treasury Secretary who has criticized the fiscal and monetary response to the pandemic, said at a May event hosted by CoinDesk.

“We used to have a Fed that reassured people that it would prevent inflation,” Summers said. “Now we have a Fed that reassures people that it won’t worry about inflation until it’s staggeringly self-evident.”

Higher inflation also tends to give way to higher wages, but rising pay might not benefit the economy as some hope. Fed analysis of how stimulus checks were spent suggests most additional income would mostly go toward paying debts and boosting savings, with only a fraction going toward spending.

Even the target for maximum employment isn’t entirely clear, as an unusually large number of Americans likely stopped working for good during the pandemic. A “significant” number of retirees skews estimates of the labor force’s size, Powell said in a Wednesday press conference. This effect “should wear off in a few years” as retirees are replaced with new workers, he added. Maximum participation will likely cloudy until then, whenever that is.

The unusually large jump in retirements through the pandemic could still give way to a stronger labor market, as was seen in the years before the health crisis, Randal Quarles, vice chairman for supervision, said in late May. Still, with uncertainties abound, the Fed may need to issue “additional public communications” about its progress targets and broader goal of maximum employment, he added.

That means maximum employment, while a worthy goal in many ways, carries more than inflation risks. It could be a cloudy and uncertain destination even for top policymakers.

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Americans can look forward to a ‘very strong’ labor market in 2022, Fed’s Powell says

GettyImages 1204924936
Markets want more clarity from Jerome Powell and the Fed

  • The labor market is on track for a healthy rebound in the coming months, Fed Chair Jerome Powell said.
  • One can expect “strong job creation” in the summer and heading into fall, he added.
  • The labor shortage is temporary, and there’s reason to believe worker supply can exceed expectations, Powell said.
  • See more stories on Insider’s business page.

The labor market is far from a complete recovery, but the country should see encouraging progress over the next several months, Federal Reserve Chair Jerome Powell said Wednesday.

Data tracking Americans’ return to work has been somewhat mixed throughout spring. On one hand, the economy is creating jobs at a steady pace. April and May both saw hundreds of thousands of payroll additions, although April was dismal in light of expectations of much bigger gains. Jobless claims are far lower than they were just months ago. And stronger wage growth suggests businesses are paying up to counter the labor shortage.

On the other, recent reports have fallen short of economists’ forecasts. Jobless claims unexpectedly ticked higher last week. And even at May’s more accelerated rate of payroll growth, it would take until July 2022 to fully recover all the jobs lost during the pandemic.

Despite the downside risks, Powell holds an unquestionably positive outlook for the labor market’s rebound. In a Wednesday press conference, the Fed chair said payroll growth should accelerate in the coming months as the pandemic fades further and more Americans rejoin the workforce.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” Powell said. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

Projections from the Federal Open Market Committee support Powell’s sentiment. Policymakers expect the unemployment rate to slide to 4.5% by the end of 2021 from the May reading of 5.8%. The median forecast for 2022 unemployment was revised slightly lower to 3.8% from the March estimate of 3.9%. Officials then expect the rate to match its pre-pandemic low of 3.5% by the end of 2023.

Powell also downplayed concerns that a shortage of workers would permanently drag on the recovery. The previous economic expansion showed that labor supply can exceed expectations as the unemployment rate sits at historic lows, the Fed chair said. There’s no reason to think that dynamic won’t repeat itself, he added.

In the near term, Powell sees a handful of trends keeping Americans from returning to work. Childcare costs, COVID-19 fears, and enhanced unemployment benefits are likely dragging on labor-force participation, the central banker said, echoing comments from other Fed officials and lawmakers.

Another major hurdle could come from a simple skills mismatch, he added. Americans who could return to their previous jobs have largely done so already, Powell said. With those easy gains out of the way, a significant portion of payroll growth will have to come from Americans finding new work.

“This is a question of people finding a new job, and that’s just a process that takes longer. There may be something of a speed limit on it,” Powell said. “There’s just a lot that goes into the function of finding a job.”

Read the original article on Business Insider