Staffing shortages in America are a glimpse into its future

FOR NEW truckers in Portland, Oregon, a $30,000 signing bonus. For new recruits in the military, a bonus of $50,000. Route closures for public buses from Texas to North Dakota. The end of automatic daily housekeeping service at most Hilton and Marriott hotels. Amazon and Walmart offers to cover college tuition for their employees.

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The common thread running through all of these snapshots, a small sample of such stories, is a striking imbalance between the need for workers and their availability in America today. The economy has surpassed its pre-covid-19 level of GDP. Companies in almost every sector, from hospitality to finance, are desperate to hire people to meet the demand. But the number of people willing to work for them is way down: The US has about 3 million fewer workers now than it did on the eve of the pandemic, a 2% contraction in the workforce.

That’s great news for job seekers. It is easy to find work. Wage growth (at least in cash terms) is strong, especially for those with low incomes. However, for the United States as a whole, it is a bigger concern. If the population is close to full employment, meaning that almost anyone who wants a job can find one, then economic growth is already reaching its upper limits. An overheated labor market would add fuel to the inflation already sweeping through the economy, making it much more difficult to stabilize prices.

For much of the past two years, a fair assumption was that as the pandemic subsided, people would go back to work en masse. That seems less plausible today. Some of the decline in the number of workers is likely to be permanent. This, in turn, could limit America’s economic potential, as a shrinking workforce will be a drag on growth, says Marianne Wanamaker, an economist at the University of Tennessee. “I think we’ve changed planes here, unfortunately,” she says.

People who have left the labor market can be divided into three large groups: people in their best working years who, for various reasons, would prefer to be at home; seniors who were headed for retirement and have accelerated their departures; and immigrants, whose flow through legal channels has dried up.

It’s easier to be optimistic about working-age workers. Each month brings more of this group, those between the ages of 25 and 54, back into the job market. At the current rate, their labor force participation rate will return to the pre-pandemic level of 83% by the end of this year.

The resumption of face-to-face schooling since last summer has freed up parents, which is especially important for women who have been doing additional childcare duties. (The Omicron wave, which has led some schools to return to remote learning, is a setback, but a temporary one.) dock. As more Americans burn through their pandemic savings, the pressure to find work will only increase.

Those who retire early may find it more difficult to change. If older Americans, ages 55 and older, had continued to work at their pre-pandemic level, the country would have nearly 2 million additional workers today.

One factor explaining their reticence may be rising property and stock prices, according to economists at the Federal Reserve branch in St. Louis. Those about to retire with ample savings may now feel less of a need to tick the clock. There may also be a more worrying explanation. Older people have been hit harder by Covid, and poor health, or the threat of it, could deter them from working, says Betsey Stevenson, an economist at the University of Michigan. Either way, the longer older people remain out of work, the more difficult it will be for them to return to work.

A decline in immigrants compounds that. For all the attention to illegal border crossings from Mexico, the bigger story is the lack of foreigners in the United States. According to Giovanni Peri and Reem Zaiour of the University of California, Davis, there are about 2 million fewer working-age immigrants than there would have been if pre-Covid-19 trends had continued. About half would likely have had college degrees, so their absence hurts high-skill and low-skill industries alike.

An end to the pandemic would ease the backlog in the US visa system. But changing political winds, a reluctance to admit as many immigrants as in the past, may limit inflows. An industry with a 10% higher reliance on foreign workers than another industry in 2019 typically had a 3% higher job vacancy rate in 2021, Mr. Peri and Ms. Zaiour calculate.

One of the main reasons the Fed had been reluctant to raise interest rates, despite rising inflation, was its view that the economy was far from full employment. But with labor force participation stubbornly low, he has changed his tune. Last week, Fed Chairman Jerome Powell said that America’s best hope for boosting the labor force over time would be a long and steady recovery. For that, you need price stability; hence the imperative to control inflation, which hit 7% in December, a four-decade high. Most economists believe the Fed will raise rates for the first time since the pandemic in March, with at least two more hikes this year.

The pandemic adds to the uncertainties due to its impact on where people work. When restaurants cut staff, Amazon and the like swept them away. A commonly expressed hope is that as consumer demand returns to services, away from goods, price pressures will ease. That, however, is far from being the case. “Without an increase in labor force participation to help meet demand, inflation in the second half of 2022 could be driven by rising prices for services,” warns Ms Stevenson.

Still, the job market will most likely be a bit quieter by the end of the year, thanks to a combination of slower economic growth, a fading pandemic and more working-age Americans going back to work. But today’s extreme tightness will have offered a glimpse into the future as aging depletes the pool of potential workers. Ms Wanamaker describes the prospect as a “perpetual job shortage”. Surviving with less help will be the new normal.

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This article appeared in the US section of the print edition under the headline “Help Needed, Now and in the Future.”

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