MNI INTERVIEW: US Unemployment +5% For Next 3 Years-Fed Fellow

U.S. unemployment will take at least three years to decline under 5% with higher-educated workers now facing pressures the rest of the job market saw at the start of the pandemic, Washington University professor and St. Louis Federal Reserve research fellow Yongseok Shin told MNI.

Labor market tightness in November was nearly identical for both college-educated workers and workers with a high school education or less, according to a NBER study co-authored by Shin. Not only has that never happened before, it's "startling" because most of the jobs lost since the onset of the Covid-led recession have been lower-wage, lower-skill positions, he said.

"In some sense you could say that everybody's suffering equally," he said in an interview. "That's what's very unique about this recession."

January's unemployment rate may even inch higher than the 6.7% seen in November and December, he said.

The U.S. will be "lucky" to see unemployment below 6% by December of this year, Shin said, and it will likely be another three years before unemployment falls below 5%. That's more pessimistic than the FOMC's December projection, which showed median jobless rates of 5% in 2021, 4.2% in 2022, and 3.7% in 2023.

LITTLE RECOVERY FOR EDUCATED

There has been "very little recovery for highly educated people" through November, he said. Less educated workers have regained their jobs faster in part because they were lost only temporarily due to virus business restrictions or closures.

"Furloughs played such an important role last year; it was a very unique pattern," he said. While the unemployment rate is falling for highly educated workers, "it's just not falling fast enough."

Shin's findings differ from some experts concerned the job recovery is "K-shaped" and creating different outcomes either by racial groups or between educated and less skilled workers. Fed Chair Jerome Powell Wednesday at a press conference kept the focus on signs of weakness among "lower-wage workers in the service sector and for African Americans and Hispanics."

With the explosion of remote work during the pandemic, companies that typically hire highly educated workers have realized that they can be just as productive with fewer staff, Shin said.

"It's providing them the opportunity to reassess," he said, and ask themselves "how many workers do we really need?"

LEAVING THE JOB MARKET

The differential impact between men and women in the labor market also "vanished" in November, Shin said. That likely reflects more women leaving the labor force to care for children and other family members affected by the pandemic.

As of November, the rate of male unemployment was 3.2 percentage points higher than one year ago, greater than the 2.9 point increase for women. The increase in the rate of non-participation was also higher for women at 1.9% than it was for men at 1.7%.

Women leaving the workforce doesn't bode well for a speedy jobs recovery, Shin said. It could also mean women will account for a larger share of long-term unemployment in coming months, making it more difficult for them to return to work once the pandemic is under control.

"Employers are very reluctant to hire people out of the labor force for even a year," he said. "The fact that most of these people outside the labor force are women could have long-term consequences -- and those consequences are going to bias women."