The most important thing to remember about the labor market right now is that the problem is the opposite of what we’re used to after a recession. We don’t need more jobs; we need more workers. After the last recession, the name of the game was job creation. This time, it’s not.
How’d we get here? The Bureau of Labor Statistics started keeping track of job openings for the whole economy in December 2000. Since then, there have only been two periods when the number of job openings exceeded the number of unemployed persons: January 2018 through February 2020 and May 2021 through today.
At no point between the mild recession in 2001 and the Great Recession did the number of job openings exceed the number of unemployed persons. During the Great Recession, the number of job openings decreased, and the number of unemployed persons increased. Both happened steadily throughout the entire 18-month recession, with unemployed persons increasing faster than job openings were declining.
The gap between them reached its apex in October 2009, when there were nearly 13 million more unemployed persons than job openings. It gradually closed over the next eight years, finally disappearing in January 2018. (You may remember this talking point from the Trump administration: We had more jobs than people to fill them.) Things had seemed to stabilize at a little over 1 million more job openings than unemployed persons.
Then the pandemic recession hit. The number of unemployed persons jumped from about 6 million in February 2020 to 23 million in April 2020. The number of job openings fell from 7 million to 4.5 million over the same span. That was normal recession behavior, direction-wise: The number of unemployed persons goes up, and the number of job openings goes down.
But things have snapped back in a very unusual way. By May 2021, only twelve months after the end of the pandemic recession, there were already more job openings than unemployed persons. What took 103 months after the Great Recession only took twelve months after the COVID recession. And the gap is already much larger than it was before the pandemic: There are almost 3 million more job openings than unemployed persons.
Two economists wrote about our unusual job market today, and their thoughts are worth your time.
Here’s Brad DeLong:
Recent data show that 3% of US workers – 4.4 million people – quit their jobs in September. That monthly quit rate is not only remarkably high; it is unheard of, especially given that the US employment-to-population ratio is still only 59.2%, almost two points below its February 2020 peak.
What is going on in the US labor market? In normal times, the current figures would suggest that America is dealing with a great shortage of jobs. And yet, workers’ outsized willingness to quit their jobs and look for something better indicates that these are not normal times.
There is a standard list of explanations for this so-called Great Resignation. One obvious factor is fear of COVID-19, especially among those who live with elderly or immunocompromised relatives. Low-wage workers do not want to log long hours in service-industry settings that require them to come into close contact with other people, not least the sizable share of the population that remains unvaccinated. . . .
One notable effect of the pandemic is that it has fueled a transformation of work and the workplace that either would have taken decades in the absence of the virus, or would never have happened at all. Consider, for example, the widespread shift to remote white-collar work; the rapid automation of substantial components of service work; or the transformation of retail – requiring many more delivery drivers and many fewer in-store sales workers.
These changes have brought a great deal of convenience to many consumers and employees. Suddenly, online tools are good enough that one need not shop in person to get a sense of a product’s quality. (And if a delivery isn’t what was expected, one can always return it.) The sectors affected by these changes will not be returning to the pre-pandemic status quo.
Here’s Arnold Kling:
My own perspective on the labor market is that the economy is unusually far from equilibrium. Prices and wages are too low, so that we have “shortages.” Relative wages and prices are out of alignment, so that we have temporary over-supply in some sectors and under-supply in others.
Think of the employees who prefer to not go into the workplace every day and whose employers learned during the pandemic that remote work and work-from-home can be managed. This “laptop class” has received what amounts to a windfall of non-monetary compensation.
But other workers have gotten a cut in non-monetary compensation. Their workloads have increased. They have suffered a loss of autonomy (having to wear masks, perform cleansing rituals, get tested regularly, etc.)
The divergence in non-monetary compensation has left labor markets out of equilibrium. To move toward equilibrium, monetary compensation for remote and work-from-home employees must fall relative to that of workers forced to engage in germaphobe theater. This adjustment will probably take place in an inflationary environment in which everyone’s pay goes up, but the workplace-bound get higher raises than the laptop class.
To move toward equilibrium, the price of shipping goods by truck will be much higher. That is what I infer when someone claims that there is a “shortage” of a few hundred thousand truck drivers. Some of the higher shipping prices will be passed through to truck drivers as higher pay, and perhaps more people will choose to become truck drivers as a result. But not a few hundred thousand more, which is what it would take to keep shipping prices from rising. . . .
We are seeing “the Great Resignation” because markets are out of equilibrium. Once wages and prices have adjusted upward, and once we see more workers in sectors where they are most wanted and fewer workers in sectors were there is relatively less need, the high quit rates and other peculiarities of today’s economy will fade.
Regardless, Andrew Stuttaford’s post from a few days ago seems right: The current jobs situation is not something that should be overly concerning for monetary policy and there’s “no reason to reverse the acceleration of the taper now advocated by the Fed.”