The US economy is set to take off in the coming months as it rebounds from the coronavirus pandemic, but the recovery faces a new challenge in an apparent labor market shortage.
Employers are reporting difficulties integrating new workers, even though the country’s unemployment rate is 6% and some 9.7 million Americans say they are actively looking for jobs, according to data from the Department of Labor.
But a Bank of America analyst note estimated 4.6 million workers left the workforce during the pandemic. More than half of those workers will not return to the workforce until the end of the year, the team led by Joseph Song said in a note to clients.
One reason is that fears of catching COVID-19 and the more contagious variants are still high among many Americans, Song said. He predicted that these concerns would ease over the summer with increased vaccination rates and a decrease in COVID-19 cases.
Song also blamed the softened unemployment benefits provided to workers during the pandemic. The Biden administration’s $ 1.9 trillion relief program increased unemployment assistance by $ 300 per week through September; Americans who were earning less than $ 32,000 before the crisis began would do better in the short term to collect those benefits rather than work, Song said.
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“Low-wage workers are currently discouraged from working because of generous unemployment insurance benefits, which can contribute to the labor shortage,” he said. “These two dynamics should be largely resolved by September and could encourage more workers to return to the workforce. ”
Bank of America predicted that 2.5 million Americans would re-enter the workforce by fall, but predicted that the remaining 2.1 people may be slower to return to work – or never re-enter the market. work at all. An additional 700,000 Americans are expected to have left the workforce due to a mismatch between their skills and those required for the job.
The difficult situation could cause the unemployment rate to drop faster than expected, economists said, and could also lead to faster wage growth, with companies paying more to fill vacant positions. But there is a “high risk” that the participation rate will never fully recover, Song warned.
Federal Reserve Chairman Jerome Powell addressed the issue on Wednesday after the central bank’s two-day policy meeting, predicting that the apparent bottleneck in the labor market will end in the coming months.
“I guess we’ll come back to this economy where we have a balance between supply and demand for labor,” said Powell. “It may take a few months, however. ”
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Powell suggested that potential workers could apply for jobs despite the lack of necessary skills. He also said there could be geographic differences. Another reason for the disparity, Powell said, is that schools aren’t open yet – meaning some people who want to return to the workforce can’t because they’re still home for s ‘take care of their child. Powell also indicated that some Americans were afraid to return to work because of the fear of being infected with COVID-19.
“Obviously, there is something going on there as a lot of companies are reporting labor shortages,” he said. “We are not seeing an increase in wages yet, and we will likely see it in a very tight labor market. We might just start to see that. “
As business leaders were quick to blame the expanded unemployment insurance benefits, Powell said it was not clear whether the increased federal benefits were affecting workers’ reluctance to return to their jobs.
“I also think unemployment insurance benefits will run out in September,” he said. “So as long as it’s a factor – which is not clear – it won’t be a factor soon enough. ”