Do you have a labor shortage? Make your work easier


Federal Reserve Chair Jerome Powell insists that the tight US job market is not primarily responsible for today’s high inflation, instead pointing to other culprits such as commodity prices, supply chain problems and the war in Ukraine. The demand for scarce labor is not a weakness, but a sign that a recession is not yet imminent. Right as he may be on both counts, a persistent labor shortage could still be a very big problem in the longer term.

A full two years before the outbreak of the pandemic and in the past 11 months, job vacancies have outstripped the number of job seekers – a phenomenon not seen in data since 2000. In the short term this can be healthy, bringing a rare and much-needed increase in wages and bringing people like the long-term unemployed back into the labor market. Eventually, by reviving the labor supply, the excess demand can satisfy itself.

This time, however, the sane scenario doesn’t quite play out. Wages are rising, but not enough people are returning to the labor market. In June, the adult participation rate was about 62%, down from 67% in 2000 and the mid-1970s level. This raises the question of whether the US faces long-term labor shortages that could erode the country’s productive potential.

The US prides itself on its work ethic, a cultural zeal reflected in social policies such as B. Employment requirements for food stamps and tax bonuses for working single mothers. Last year, Congress ended the expanded child tax credit – which lifted an estimated 3.7 million children out of poverty – over concerns that it could push a small fraction of parents to work less. So why aren’t more people working?

A key headwind is demographics: baby boomers are aging out of the workforce, and this will continue at least until the last of them turns 65 in 2029. Even if some boomers delay retirement, that won’t stop the overall slide.

But the working population is also struggling with self-inflicted structural weaknesses. Many people find themselves confronted with obstacles to employment that they cannot eliminate on their own.

Women, for example, could be more involved if the US adopted policies — like paid family vacations, free childcare, and the right to work part-time — that most industrialized nations did a quarter century ago. Black men face well-documented obstacles such as: B. Discrimination in hiring, disproportionate discipline in school and disproportionate incarceration. People with disabilities often require employers to provide the reasonable accommodations required by the Americans with Disabilities Act.

And let’s not forget the immigrants. There are almost 45 million in the US, which is 17% of the labor force. But in the 36 years since Congress passed the Immigration Reform and Control Act of 1986, lawmakers have failed to address the barriers to would-be immigrants seeking to work, visa requirements that limit current immigrants’ ability to work, and groups like those in the Deferred Action for Childhood Arrivals program to address the legal limbo.

It’s easy to blame the pandemic for today’s labor shortages, but it can’t explain long-term participation problems. The headwind of the developing demographic development can explain this, but does not offer a sustainable solution.

If the US is to avoid long-term labor shortages, it should pay attention to what the policy can do but hasn’t fully addressed. We’ve used the carrot and stick for a long time, but this is an issue we may not be able to excuse or punish. Finding labor can be as simple as giving more people the opportunity to work.

More from the Bloomberg Opinion:

The Fed should prepare for higher unemployment: Clive Crook

The labor market will support the inflation fight, not hinder it: Conor Sen

The US needs more migrant workers, not more relatives: Allison Schrager

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Kathryn Anne Edwards is an economist at Rand Corp. and Professor at Pardee Rand Graduate School.

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