What Seems to be Going on With Labor Market Data, at Least in Terms of its Underperformance Compared to Expectations? 

Both private economists and public officials have shared a variety of opinions about remaining issues weighing on the jobs recovery. The arguments seem to be focused on a few key areas. Some are easier to rectify in the short term than others.

(1)   Continued Covid-based concerns over either workplace environments or potential exposure to household members not yet vaccinated (like children) or are otherwise still vulnerable. These worries have seemed to wane as total vaccinations rise and mask/distancing/capacity requirements are unwound, but vaccine momentum has plateaued a bit.

(2)   Caretaking responsibilities of elderly adults and/or children not yet having returned to physical school. (This has had a detrimental effect on women in the workforce, particularly those not able to work remotely.)

(3)   Generous government unemployment benefit extensions that, in some cases, provide income larger than expected wages from work. This has led to about half of U.S. states to start cutting back those additional benefits as reopenings ramp up, with the broader extensions ending in Sept.

(4)   Difficulty in employers finding the right workers for the right jobs. This is an extension of the long-standing ‘skills mismatch,’ which has especially affected higher-skill areas in construction and manufacturing. While partially related to Covid disruptions, there are other longer-term factors at play, including geographic mobility, and a demographic cliff of retirements occurring in skilled trades. Efforts to improve trade school enrollment and other job training programs are longer-term initiatives, but can’t help a lot in the near-term. Politically, these gaps between labor demand and supply, as well as relative worker bargaining power, have translated to calls in some camps for higher minimum wages, paid community college, better healthcare/leave benefits, etc. The rebuttals to these policies are the high costs and uncertain end benefits to the economy.

Despite the speed of the Covid disruption and recovery cycle over the past year already, the depth of the recession has exposed a few already-existent gaps in the economy—particularly in jobs markets. With labor being one of the Federal Reserve’s two mandates, and conditions still in transition, it appears it may be the key policy driver for the next several meetings at least.

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