“Enhanced unemployment benefits have made it harder for employers to fill low-paying jobs, working parents continue to struggle with child care, and some workers are sitting out because of pandemic concerns.” Barron’s

According to a recent article in Barron’s Magazine, there are 9.2 million job openings and 9.5 million unemployed in the U.S. Employers, conservative politicians, economists, and policy makers blame the bottleneck on twin forces:

• Generous jobless benefits that have made unemployment the better economic decision for millions of low-paid workers, and
• A year of remote learning that has pushed some two million parents—mostly mothers—out of the labor force.

The expectation by many economists is that the labor shortage will resolve itself this fall once extra federal jobless assistance ends as of September 6 and parents send their children back to school. However, there are deeper problems besetting the labor market, from “an aging workforce and a new desire of many workers to be their own boss to a deep skills mismatch and a pandemic that hasn’t ended”.

The impact of slowing population growth on labor supply hadn’t been so apparent before the pandemic because many baby boomers worked past the traditional retirement age of 65. In July 2019, Pew Research Center said the majority of U.S. adults born between 1946 and 1964 were still working, with the oldest among them staying in the labor force at the highest annual rate for people their age in more than half a century. But now the oldest boomer is turning 75, the working-age population is falling for the first time in U.S. history, and the pandemic has led many older workers to retire ahead of schedule.

Geoffrey Sanzenbacher, an economics professor at Boston College, found that 15% of those over age 62 were retired a year after the coronavirus took hold in the U.S., up from 10% a year after the 2007-09 recession started and 13% right before the pandemic. As companies expect workers to return in the fall, he says another wave of older workers may choose to retire if they can no longer work remotely.

And, it isn’t just older workers walking away from the labor market, nor is it only low-paid service workers. Many departed workers are gone for good since they joined the gig economy or started new businesses that have flourished during the pandemic.

Yet, there is some evidence that continuing claims for jobless insurance have fallen faster in states that ended the extra payments ahead of the federal Sept. 6 expiration. Aneta Markowska, chief economist at Jefferies, says such claims have fallen 24% since mid-May in the states that have already cut the extra $300 a week, compared with a 0.7% increase in states that haven’t.

A record number of new businesses launched during the pandemic as workers turned into entrepreneurs. Immigration, the lifeblood of many services companies, dropped significantly in recent years. Retail day trading is still booming along with the stock market, keeping many who became amateur traders during the pandemic on the sidelines.

Many doubts persist that millions of moms will return to work in September. Many families have established new norms over the past year, and many parents still harbor COVID-19 virus concerns. While employment among working women without children has almost returned to prepandemic levels, mothers with school-age children are lagging, Misty Heggeness, economist at the U.S. Census Bureau says. Further, she is skeptical that trend will meaningfully change in September. “I think we’re underestimating the fear people have with the virus,” Heggeness says, adding that it’s plausible some parents will hold back children in the fall if virtual learning is an option and if parents themselves remain reluctant to return to workplaces.

June’s Unemployment numbers

The June jobs report looks almost perfect, with hiring beating Wall Street’s expectations and wages rising. One might be tempted to declare the labor shortage over. But investors shouldn’t take the bait just yet. While a nonfarm payroll increase of 850,000 is undeniably strong, it belies a labor market still plagued with supply problems.

• First, consider that government hiring rose 193,000 last month. That accounts for the entire headline overshoot versus economists’ expectations. Company payrolls increased 662,000, which would be incredible for normal times. Yet it was still far off the one million mark that economists had anticipated by this point in the recovery, as the economy bursts open and vaccinated consumers spend the trillions of dollars in cash stashed during the pandemic.
• Second, labor-force participation was flat in June despite better hiring. That rate, 61.6%, is still down 1.7 percentage points from its prepandemic level. The employment-population ratio, which Federal Reserve officials have said they are watching, was also unchanged in June; at 58%, it remains 3.1 percentage points below its prepandemic level.
• Third, the slowdown in wage growth is deceiving. The 0.3% increase from May looks like a Goldilocks print—enough to drive continued spending without fueling inflation fears that have been building as shortages from labor to chips to food push prices broadly higher.

Hiring is being held back by supply, not demand: On an annualized basis this year, leisure and hospitality wages are up 12.3%, transportation and warehousing pay is up 8%, and retail wages are up 5.5%.

Labor force participation was stagnant in June, reflecting an ongoing labor shortage. The degrees to which transitory factors—generous unemployment benefits, child-care issues, and Covid-19 concerns—are capping hiring and driving up wages won’t be clear for months. Schools need to reopen to resolve child-care issues holding back working parents, and enhanced unemployment pay needs to expire before it becomes clear the extent to which such benefits are keeping workers home.

While about two dozen states either have started cutting or are about to cut the extra $300 a week in unemployment insurance ahead of the federal program’s Sept. 6 expiration  70% of those unemployed won’t be affected by those early terminations.

References:

1. https://www.barrons.com/articles/labor-shortage-worse-than-it-looks-51627664401
2. https://www.barrons.com/articles/the-labor-market-is-out-of-whack-job-openings-hit-record-high-as-hiring-slows-51625679925
3. https://www.barrons.com/articles/jobs-report-investors-should-be-skeptical-51625267210