Last month, Jerome Powell, chairman of the Federal Reserve, identified the most uncomfortable trade-off in the economy. “Today’s labor market is tight at an unhealthy level,” he told a news conference. We welcome a reduction in unemployment in most places, and an increase in the number of people at work. But labor markets could become very tense – creating labor shortages that shut down production and wages could spiral, which could feed overall inflation.
Mr Powell fears that the US has crossed the threshold from good-tight to bad-tight, one reason why the Fed is pointing out that high interest rates are on the way. Increasingly, however, labor markets elsewhere in the rich world are also pushing for limitations.
Almost no one saw this coming. When the epidemic hit in 2020, most economists believed that the rich world was in the throes of long-term unemployment, which followed the 2007-09 financial crisis. The U.S. unemployment rate reached 14.7% in April 2020. If unemployment had fallen at a post-financial crisis pace, the unemployment rate would have been more than 13% in March this year.
In fact it is 3.6%. And America, by many standards, is lagging behind. The increase in the number of Americans who have decided that they do not want to work at all, and therefore those who do not count as unemployed, means that the share of jobs for 15- to 64-year-olds is slightly below his level. At the end of 2019 (see Chart 1). In one-third of the rich countries, however, this share is the highest ever. Even among the other two-thirds, including the United States, the average employment rate deficit is only one percentage point. This adds up to the fastest and broadest-based job boom in history.
Canada and Germany are among the countries with the highest employment rates of all time The same is true of France, which is known for its high unemployment. Greece’s working age employment rate is three percentage points higher than its level in 2019. Most rich countries have 20 million or more jobs across the OECD group as predicted in June 2020. There have never been so many vacancies: 30m, by EconomistIts calculations, even as energy prices and rising interest rates raise concerns in the global economy, show no sign of declining labor demand from “real-time” indicators.
Why is work recovery so fast? One reason is the shocking nature of the impact on the economy in 2020. History has shown that financial crises ট tight monetary policy, banking crises and more হয় cause long-term pain. But economies typically recover quickly from “real” disasters, such as natural disasters, wars, and epidemics. After Hurricane Katrina in 2005, Louisiana’s unemployment rate rose but fell sharply (although some of the adjustment came from the evacuation of people). After World War II, European labor markets quickly exploited soldiers returning to the front lines.
Government policy has also increased jobs. By 2020, countries including Australia, Britain, France and Germany have introduced or expanded job-protection or furlough schemes. On top of one-fifth of European workers, they were technically employed while sitting at home. When the lockdown is lifted, they can quickly return to their roles, instead of searching and applying for jobs, which takes time and thus keeps unemployment at bay. The United States has introduced a moderate job-protection scheme, but its efforts were primarily aimed at maintaining people’s incomes through stimulus checks and top-up unemployment benefits.
One or the other kind of stimulus schemes shrinks the family money. Many have also curbed spending in 2020, allowing them to accumulate huge savings. The stockpile is now being spent on everything from consumer goods to housing, to increase demand for workers in areas such as online retail and property services (including an additional 200,000 estate agents in the US).
As the demand for labor is so strong, employers are being forced not only to increase the number of jobs but also to improve their quality. Amazon exaggerated when, last year, it said it would strive to be “the best employer in the world”, but many other companies are making similar promises, offering better employee in-office benefits (such as delicious cafeteria meals) or better compensation packages (e.g. ) Offers. Free college tuition). Enterprise investors have invested more than $ 12 billion in global HR tech startups by 2021, about 3.6 times their invested capital in 2020, according to Pitchbook, a data provider.
Bad employers are having a hard time. The share of Americans concerned about poor job security is nearing a historic low. The share of full-time workers in the “zero-hour contract” in Britain, where there are no guaranteed hours, has risen since the financial crisis but is now declining. Many of the fast-growing gig-economy firms that relied on unemployed workers in the early 2010’s are now struggling to find workers. Whether it’s London, Paris or San Francisco, the ride is much harder than ever.
The best measure of the narrowness of the labor market is wages, which convert the relative bargaining power of workers and companies into a single number. In some places the situation is clearly getting out of hand. Wheeler County, Nebraska, is a heavy farm far from anywhere. Unemployment fell by about 0.5% in December. Nearby Chipotle Mexican grill jobs pay $ 15-16.50 per hour, at least double the federal minimum. Some companies claim to be raising wages by 30% or more.
Some countries still steadily see Un-Nebraska. Japanese wage growth is easing, not accelerating. The “special wage” in December, which includes winter bonuses and is usually about half of the total cash wages that month, fell 1% year on year. The German wage increase is not doing anything special. Canada is respectable but it is difficult to do things that are out of control.
On average, however, labor markets across the rich world are clearly tightening. America is obviously overheating. According to the Atlanta Fed, the average wage in February was 5.8% higher than a year earlier, with the minimum wage seeing a big increase (see Chart 3). Goldman Sachs, a bank, creates a wage tracker that corrects for various epidemic-related distortions. That’s 5% more than a year ago, the fastest rate since data began in the 1980s. Almost all wage systems in the United States have seen an unusually rapid increase (by comparison, production wages in the country have grown at an average annual rate of 4.1% between 1960 and 2019).
Prior to the epidemic, the underlying French wage growth was in the region of 1-2% per annum. Now it is close to 3 percent. Italy looks the same. On March 23, Norway’s central bank noted that “wage inflation has exceeded estimates, and wage expectations have risen.” Britain is particularly interesting. According to Goldman, the underlying salary is growing at an annual rate of about 5%. The business survey says that even faster growth in the coming year cannot be ruled out. Overall wages across the G10 are growing at least 4% a year.
Is it sustainable? For most people, a 4% wage increase rarely seems harmful. But arithmetic is inevitable. With a 4% wage increase, labor productivity (i.e., the value of what workers produce per hour) will increase by at least 2% per annum in line with the 2% inflation target. Businesses will pass on their half-hour extra wage costs to customers in the form of higher prices, but will exploit the other half as they sell more products and services, or produce them more efficiently.
It is not impossible to increase productivity by 2% per year, but it will be much stronger than before the epidemic. Although productivity growth appears to be faster than normal, our data analysis of OECD countries shows that it is less than 2%. This could continue to grow as companies reap the benefits of their large investments in remote-operated technology and digitization. The prospect of higher productivity, however, must be weighed against the fear of still-high wage growth.
If headwind growth cannot be sustained, how can it be slowed down? In countries where overall employment rates are lagging behind, a long-term possibility is that as people leave the workforce, they increase the supply of labor. Fear of Covid-19 may eventually fade and child care may be easier to find, reduce labor shortages and reduce wage growth.
This hope, however, is waning. Although many Americans have returned to the workforce in the last six months, the pace of wage growth has slowed আসলে in fact, it has accelerated. Economist Calculates that as of September, there were approximately 1.9 million “missing” workers between the ages of 25 and 54, based on the adjustment for participation rate and population growth in January 2020. By March 2022, it had more than halved to about 750,000, or more than two months in recent months. Another 1.3 million older workers are missing, but most are over 65 and probably retired permanently (and the number of missing over 65 has been rising recently).
So, presumably, labor markets in the US and elsewhere need to cool down in an old-fashioned way: central banks raise interest rates, making savings a little more attractive than spending, and thereby shutting down labor demand. The Fed has already raised 0.25 percentage points, and is expected to raise their total by 2.5 points this year. The United States can be a good example of what happens when policymakers respond to a dangerously heated labor market.