MNI INTERVIEW: US Job Mkt Has Hard Road Back To Broad Strength

America's job market faces big challenges restoring broad-based gains such as matching laid-off workers back into positions lost in the pandemic and restoring participation rates held back by older workers and women, the head of a Minneapolis Federal Reserve institute told MNI.

"What we didn't know before some of this newer work is that the participation rate does seem to be responding to these cyclical ups and downs, but just potentially with a very great lag," said Abigail Wozniak, Director of the Opportunity and Inclusive Growth Institute. "It really points to the importance of trying to retain workers' connections to the labor market to grow out of downturns like this one."

"This matching process, and I think that is something that hasn't made it into the conversation as much about kind of a significant barrier to workers returning," she said. "There could be some role for asking employers to take a broader look at their applicant pools, potentially some kinds of encouragements for workers to try searching, or workplaces to try offering some more flexibility."

The U.S. labor force participation rate was unchanged at 61.6% in October, 1.7pp less than before the pandemic, even with a 531,000 jump in payrolls. That lags its northern neighbor Canada where the rate of 65.3% has returned to about where it was before Covid. Fed Chair Jerome Powell has noted millions of sidelined workers and said talk of raising near-zero interest rates is premature amid hot inflation because maximum employment remains far away.

EAGER RETIREES, HESITANT MOTHERS

Wozniak is watching gaps in employment rates across different groups, and the labor force participation rate after adjusting for an aging population. "It's unlikely that we'll get fully back to the pre pandemic level for that, but some recovery there would be necessary," she said.

The pandemic has curbed labor supply from older workers more willing to stick with retirement, Wozniak said. More surprisingly there has been reluctance from women who could work from home, instead of a more intuitive pullback from those with close-contact services job amid Covid. The idea of a 'she-cession' amid the pandemic "was a little bit overstated," she said. "Those families of kids and women with kids are just not a big enough share of our workforce to explain everything that we're seeing."

These trends suggest hard-to-spot barriers to work that policy makers need to tackle beyond traditional responses such as re-opening schools and daycares, she suggested. The end of enhanced jobless relief checks that some politicians blame for keeping workers on the sidelines hasn't shown up strongly in participation figures either, she said, adding it's hard to isolate the impact of one financial support among many deployed to control the pandemic.

The good news is employers are keen to hire across all industries and skill levels, she said, allaying earlier fears that digitalization set in motion before the pandemic would drive employers towards machines over hiring.

SETBACKS ON INCLUSION

"There's really a lot of opportunity in almost any industry, and for workers who may not have an extremely high level of skills. So that to me is not an economy that needs a significant amount of retooling at this point," she said. "The longer folks stay out, the more pressure firms will ultimately face to reorganize that work away from them, so that's why this kind of re-matching process is so important."

Still, the rebound is already dealing setbacks to groups such as Black workers, who now face higher unemployment than workers lacking a high school degree, she said. "Some racial minorities are actually doing quite well, and employment rates are recovered. Others are not," she said.

"We've all spent a year and a half with making a lot of effort to try to ensure that that didn't happen. And then the data are telling a different story. So I think honestly, that's just really concerning."

The Fed adjusted its long-term policy goals to closing undershoots of maximum employment and ensuring a more inclusive recovery. Before the pandemic, unemployment at half century lows of 3.5% amid a prolonged expansion drew hopes from policymakers about pulling in marginalized workers, and today there is some optimism that firms eager to hire may also close gaps by race and gender.

HOT MARKET ISN'T ENOUGH

The last expansion had its weak points on easing inequality, she said, and gaps that have built up over a long period will take a long time to repair, she said. "Even with the kind of hot labor market we were experiencing in 2019, it would potentially take decades to return income inequality to its level in the 1980s," she said.

Smoothing out a job market with lopsided gains for the highly skilled demands changes beyond any economic cycle, all the way down to primary education, said Wozniak, who also served on the White House Council of Economic Advisers in 2014-15.

Source: Bureau of Labor Statistics