Two key U.S. labor-market metrics may take until 2024 to recover to their pre-pandemic growth trend, keeping maximum employment out of reach for now, a new study from the Federal Reserve Bank of San Francisco showed.
A high level of retirements is reducing both the labor-force participation rate -- the share of Americans that are either working or looking for work -- and the employment-to-population ratio, which measures the number of people employed against the total working-age population. They’re unlikely to return to pre-pandemic highs, the paper said.
“Both series are well below trend, suggesting that the labor market is short of the Fed’s maximum-employment goal, despite very strong labor market conditions that partly reflect pandemic-related employment constraints,” researchers Sarah Albert and Robert G. Valletta wrote in a study published Monday.
“Our analysis suggests that achieving the labor market’s longer-term potential may require a few more years of expansion,” they said.
While a low unemployment rate, near-record job openings and strong wage growth point to a tight labor market, the softness in participation suggests there’s still room to run. Many older Americans retired early in the pandemic thanks to strong equity and home valuations, while child-care issues and Covid-19 concerns remain a hurdle for others to get back to work.
The findings are seemingly at odds with Fed Chair Jerome Powell’s assessment of the labor market, which he said was “consistent with maximum employment” at last month’s Federal Open Market Committee meeting. The Fed hasn’t explicitly spelled out how it defines maximum employment, but has said repeatedly that it’s seeking a “broad-based and inclusive” recovery.
The U.S. labor market showed unexpected strength in January with a payrolls gain of 467,000, adding more pressure on the central bank to raise interest rates amid decades-high inflation.
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