Fed prepares reduction of economic stimulus 1:01
Editor's Note:
Gad Levanon directs The Conference Board's Labor Market Institute.
The opinions expressed in this article belong solely to the author.
(CNN) -
After the pandemic unemployment benefits ended and schools reopened, many expected workers to return to their jobs and the country's labor shortage to narrow sharply in September. But recent data suggests that, if anything, the worker shortage is worsening. And while the risk of severe shortages continuing into 2022 is not the most likely scenario, the chances of it happening are increasing. This means that we could see significantly lower economic growth next year.
Most small businesses (51%) say they have vacancies they cannot fill, according to a September survey by the National Federation of Independent Business.
The Conference Board CEO Confidence Survey revealed that the percentage of companies citing difficulties in attracting qualified people rose from 57% in the second quarter of 2021 to 74% in the third.
And the ratio of job openings to hires, an indicator of the median time to fill jobs, is at a series high, according to the Bureau of Labor Statistics, as is the rate at which workers quit. voluntarily to their jobs.
A record number of Americans are leaving their jobs
Some factors continue to limit the supply of workers. Some people are delaying their return to the job market because they still fear contracting the virus and getting sick. The federal mandate for large private companies to require workers to be vaccinated or tested weekly may put a new drag on the labor supply, as some workers will not be willing to get vaccinated. Additionally, the labor force participation rate of older Americans, which measures the proportion of a population that is employed or looking for work, dropped significantly during the pandemic. And there is no indication that it will recover, either because older workers are at higher risk of becoming seriously ill from contracting the virus, or because they feel financially prepared for retirement.given the rise in stock and home prices in recent years.
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Additionally, many working-age Americans have become more selective about the jobs they are willing to consider, or have decided to stop working altogether.
Of course, the selectivity of people depends on how long they can survive without a salary.
And in the last 20 months, a significant part of households have been able to increase their savings thanks to reduced spending, increased public aid and the large rise in housing and stock prices.
But these savings won't last forever.
The most likely scenario is that many Americans will return to the job market in the coming months, bringing some relief from the worker shortage.
That said, there is a significant possibility that the worker shortage will continue into 2022.
When companies have difficulty hiring and retaining workers, wage acceleration occurs.
According to the September employment report, median hourly earnings increased at an annual rate of 6% in the last six months.
This is more than double the average rate of the decade before the pandemic.
This wage acceleration will affect companies' profits and may cause them to have to raise prices.
Expectation for October US Employment Report 0:41
What's more, not only did labor costs accelerate dramatically in 2021, but the inability to find workers affected the operations of some companies and helped reduce their profits. Meeting the demand for 3-4 million more workers as the US economy continues to reopen in 2022 will be a major challenge.
The United States needs to find ways to increase the number of workers through broader and more economically motivated immigration policies and greater participation in the workforce.
For example, the federal government may make the needs of the labor market for specific skills a major consideration in immigration policy.
And companies should try to hire more workers from demographic groups that tend to participate less in the workforce.
If these issues are not addressed, continuing labor shortages would pose a serious risk to America's inflation and economic growth prospects in 2022. First, the salaries of new hires will continue to grow rapidly.
US companies raise minimum wage to tackle worker shortage
This, added to the increase in the cost of living, will increase the wage growth of workers who remain in their jobs.
In general, higher annual increases and special adjustments to retain workers are likely to further increase overall labor costs for companies.
For the first time in decades, the scenario of a wage-price spiral, in which rising prices and rising wages feed off each other, causing faster growth of both, could actually hamper economic growth.
In such an environment, the Federal Reserve will be forced to raise interest rates several times in 2022 and substantially slow GDP growth above current forecasts.
If legislators, business people and opinion leaders do not more clearly recognize the current dangers posed by the labor shortage, the United States runs the risk of not being able to fully recover from the pandemic economically over the next two years. .
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