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MNI INTERVIEW:Biden Investments Shield Jobs From Fed-Sojourner

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U.S. workers in some interest-rate rate sensitive sectors are insulated from the Federal Reserve's rate hikes because of President Joe Biden's trillions in investments, although workers' leverage is moderating, Aaron Sojourner, a former senior economist at the White House Council of Economic Advisers, told MNI.

"The federal investments that have been made in infrastructure, manual manufacturing and innovation have made a lot of businesses optimistic about the future," said Sojourner, also a former visiting scholar at the Minneapolis Fed. "They see specific public investments and public-private partnership investments on the horizon as an opportunity that are very unusual because they haven't been made in a long time."

Biden's trillions of spending on infrastructure, energy, climate change projects and funding of chip research and expanded manufacturing facilities is historic and helps to explain overall construction growth that has continued apace despite recent monetary tightening, he said.

"The unusually big public commitment to investments over the coming years and of course strong consumer demand have both contributed to reluctance to lose employees and to lay off workers," he said.


Still, "there is evidence that workers have lost some leverage" in the US, he said, "but it is not falling dramatically."

One way to capture who has the power in the job market is to look at the ratio of people who quit their job to those who were discharged involuntarily, Sojourner said, calling this the "labor leverage ratio."

This ratio is down from the peak but has been mostly moving sideways recently, he said. Even in previous strong job markets, this measure didn't exceed 2, except for two months in early 2019. But after peaking in December 2021 at 3.5, the most recent December data has it sitting at 2.8.

Outside of some high-profile companies mostly in the tech sector, layoffs in the economy as a whole remain historically low, he noted. That gives workers an edge which, in addition to strong consumption and Biden's long-term investments, suggests the economy may not be as responsive to Fed rate hikes, said Sojourner, now at the W. E. Upjohn Institute.

Still, Sojourner is expecting a slowdown in monthly job creation and more moderation in wage growth as employees lose leverage and the full impact from more expensive capital feeds through the economy. The United States added over half a million jobs in January and the jobless rate fell to a new 50-year low of 3.4%.


"Since the Fed started hiking rates back almost a year ago it has put a little bit of a damper on employer demand for labor. We've seen a little bit of a slowdown in hiring rates and we've seen some moderation of wage increases."

Goldman Sachs economists expect wage growth to slow to just under 4% by the end of the year and to 3.5% by the end of 2024, as the effects from Covid fade and the jobs-workers gap declines. The Fed has eyed a deceleration in wages, with officials floating preferences in a range from 3% to 4%.

(See: MNI INTERVIEW: Fed Could Hike Rates More Than Expected-Hoenig)

"There is scope to bring more people off the sidelines and see improvement of labor supply for sure," he said. "We should push to get as much as we can," said Sojourner, who worked under Presidents Obama and Trump.

MNI Washington Bureau | +1 202-371-2121 |
MNI Washington Bureau | +1 202-371-2121 |

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