Boosting the Post-Pandemic Labor Supply
Boosting the Post-Pandemic Labor Supply
Deputy Chief Economist and Managing Director
Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either ec…
Michael is part of the team responsible for forecasting and analyzing the North American economy and financial markets. He has spent his career working in either ec…
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Even before the pandemic decimated the labor market, finding and retaining talent was at the top of many business owners’ minds. While the economy has staged a significant recovery since last spring, there were 8.4 million fewer jobs on payrolls in March 2021 compared to February 2020, according to the labor department.1
Labor supply should increase as the effects of the pandemic continue to wane. The priority right now is to make sure the demand for those workers remains intact.
Favorable Conditions
The good news is that there’s plenty of fiscal stimulus currently propping up the economy. The two most recent acts—the Consolidated Appropriations Act, which then-president Donald Trump signed into law at end of December, and the American Rescue Plan Act, which President Joe Biden signed on March 11—combine for about $2 trillion in relief for the fiscal year ending in September. That should be a powerful driver behind bringing the unemployment rate down.
The easing of pandemic-related restrictions in many jurisdictions across the country should also give the labor market a boost. I'm particularly encouraged by California’s announcement that it plans to fully reopen its economy on June 152—a symbolic act given that California was the first to enact widespread COVID-19 restrictions.
The third piece of puzzle, of course, is getting more Americans vaccinated. The U.S. is among the world leaders in terms of vaccination rates.
All of these factors point to momentum in the economy, and the first-quarter GDP results indicate that we’re on the right track. Economic activity jumped 6.4%3 on an annualized basis, the second-fastest growth pace since 2003. GDP in the range of 7% annualized growth is the kind of number we’ll likely see for the rest of this year, another indicator that demand for labor will be there.
Increasing Supply
But what about the supply? The March jobs report noted that “3.7 million people were prevented from looking for work due to the pandemic.”1 There were several pandemic-related impediments that kept many people from participating in the labor force. With schools and daycare centers closed, for example, many parents simply couldn’t go to work. But as those types of restrictions are eased and as vaccination rates continue to climb, we’ll likely see those barriers start to diminish.
One of the surest ways to get more people participating in the labor force is upward pressure on wages, and it looks like that's going to happen. We're hearing a lot of anecdotal evidence in the hospitality and food service sectors. As business begins to get back to normal, they’re finding it difficult to rehire all the workers they previously had, and that's putting some upward pressure on wages.
When thinking about labor force growth, two things come to mind: quantity and quality. Quantity is a problem that countries around the world have, and there are two basic tactics being deployed from a policy perspective—immigration and a national child care strategy. Biden addressed both issues in his first speech to a joint session of Congress. His proposed $1.8 trillion American Families Plan calls for expanded access to child care, including a cap on costs for low- and middle-income families.4 Biden also called on Congress to pass immigration reform, including a path to citizenship for undocumented immigrants.5
On the quality side, it’s about whether workers have the right skill sets to satisfy the demand of jobs available now and in the future. That comes down to training and education. From that perspective, Biden’s American Jobs Plan devotes $100 billion to workforce development programs. Effective and affordable education is just as critically important for the quality of the labor force. The American Families Plan proposes tuition-free access to two-year community colleges, along with two years of preschool.
Revitalizing Manufacturing
These are some of the medium-term tactics we can pursue for growing the labor force supply. Ultimately, however, we still need an economy that can absorb all these workers, particularly in the manufacturing space.
The American Jobs Plan includes $300 billion devoted to boosting the manufacturing sector.6 It also includes a sweeping infrastructure plan in its $2.3 trillion price tag. Of course, manufacturing will benefit from any kind of infrastructure program by making the components and raw materials that go into the infrastructure projects themselves.
Another important issue for the manufacturing sector is the USMCA, which quietly came into effect last July 1. The more stringent rules concerning automobile content from North America is already boosting output in the auto sector.
Overall, we think the momentum in the economy is going to continue with a sub-4% unemployment rate by early 2022, drifting down to about 3.5% as the year unfolds. The economy lost more than 22 million jobs during that ugly period in March and April 2020; we believe that we’re likely to get all of those back by the middle of 2022.
If that happens, we’ll start wondering once again about the problems we had when labor markets were tight. The bottom line is we're going to have to look at labor force development in a way that ensures we can continue to grow.
This article was adapted from Michael Gregory’s remarks at a recent event hosted by Forward Janesville, an organization that promotes the health and prosperity of businesses in Janesville and Rock County, Wisconsin.
3 CNBC
4 ABC News
5 The Hill
