Tom Barkin, Speech: Is a Labor Challenge Coming?
“It’s possible that labor force participation will recover — in time — to our pre-pandemic normal. But what if it doesn’t? What if the aberration isn’t today but instead the above-trend participation at the end of the last upturn? There are many reasons to think that might be the case.”
“The growth of the working-age population is relatively straightforward to forecast, and predictions aren’t good. Fertility rates are down, and that trend would take a generation to reverse. My generation, the baby boomers, are aging out of the workforce, and the many retirements we saw during the pandemic are unlikely to come back. As of October, we were still down about 1.4 million older workers. Immigration policy also looks unlikely to materially change any time soon. As of October, we were missing about half a million prime-age immigrants versus our 10-year pre-COVID trend. Offshoring has been complicated by increasing wages in developing countries and heightened awareness of the risk of being dependent on foreign labor sources.”
“And participation is clearly challenged too. COVID has had to have had some impact, especially given the added pressure of child care and elder care. This seems most pronounced for working class women, who may no longer be able to make the math work to stay in the labor force, and for the many recent retirees taking care of their parents, spouses or grandkids.”
“So, labor supply looks like it will remain constrained. And the Fed’s efforts to bring demand back into balance won’t be easy when Americans still have about $1.3 trillion more in savings than they did pre-pandemic and fiscal stimulus continues — for example, the outlays coming from the infrastructure package.”
“To sum it up, COVID has caused businesses, governments and – yes – even economists to reassess their assumptions on the labor market. Increasingly, I fear we are moving to an environment where labor is short, not long. That situation can be managed, as other countries have proven, but it requires real intentionality. With that, I welcome your questions and comments.”