Opinion | A new jobs report is strong, but why is labor participation still low?
Labor force participation — the share of adults either working or actively looking for work — plummeted early in the pandemic. Which was not surprising under the circumstances. Lots of businesses shuttered as customers stayed home; many Americans who were worried about exposure to illness decided to avoid offices or other workplaces for a while; and child care was in unusually short supply, pulling parents out of the workforce.
The federal government also provided lots of financial support to enable Americans to continue paying their bills even if they were not employed, through stimulus checks, more-generous-than-usual unemployment benefits and other programs.
But since then, the economy has basically reopened. Consumer spending, and overall economic output, are well above pre-covid levels. Federal stimulus checks have stopped, and unemployment benefits are back to their standard levels of generosity. Job openings are plentiful, with millions more vacancies than there are unemployed workers to fill them.
And yet labor force participation still remains depressed, relative to pre-pandemic days. In fact, the share of people in the labor force has been declining in recent months. So has the share of the working-age population that is actually in a job:
This is not a sign of a healthy labor market. It’s not great for inflationary pressures, either, since labor shortages have been contributing to supply-chain issues and price growth. In remarks earlier this week, Federal Reserve Chair Jerome H. Powell noted there are roughly 3.5 million fewer workers today than the Congressional Budget Office’s pre-pandemic forecast of labor force growth had predicted.
Powell offered a few possible factors for this continued deficit, including higher-than-expected levels of retirements.
Retirements have indeed exceeded the numbers that would have been expected from population aging alone. This might reflect both continued covid risks (since older people are more vulnerable) and huge appreciation in asset values. Home prices and stock markets have fallen recently, but they’re still up relative to February 2020, providing a decent nest egg for many retirees. Even if you look only at the so-called prime-working age population (those age 25 to 54, so not yet traditional retirement age), labor force participation is still down.
Recently, it has been falling, too.
The question is why. One possible explanation is that the pandemic is still affecting the workforce; many Americans died, and others previously infected might be struggling with “long covid.” Child care also remains scarce. The industry employs 8 percent fewer people today than it did in February 2020. Other parts of the care economy, such as nursing homes, are also…
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