Got a Labor Shortage? Make It Easier to Work

commentary

(Bloomberg)

A sign advertising for workers outside of a gas station in Danville, Pennsylvania, March 29, 2022, photo by Paul Weaver/Reuters

A sign advertising for workers outside of a gas station in Danville, Pennsylvania, March 29, 2022

Photo by Paul Weaver/Reuters

by Kathryn A. Edwards

August 2, 2022

Federal Reserve Chair Jerome Powell insists that the tight U.S. labor market isn't primarily to blame for today's high inflation, pointing instead to other culprits such as commodity prices, supply chain problems, and the war in Ukraine. Rather than a weakness, he argues, the demand for scarce workers is instead a sign that a recession is still not upon us. Right as he might be on both accounts, a persistent worker shortage could still be a very big problem in the longer run.

For a full two years before the pandemic hit, and for the past 11 months, job openings have exceeded the number of people looking for work—a phenomenon not seen in data going back to 2000. In the short term, this can be healthy, providing a rare and much-needed boost to wages and coaxing people such as the long-term unemployed back into the labor market. By reviving the supply of workers, the excess demand can ultimately satisfy itself.

This time around, however, the healthy scenario isn't quite playing out. Wages are rising, but not enough people are rejoining the workforce. As of June, the adult labor force participation rate stood at about 62 percent, down from 67 percent in 2000 and equivalent to the level of the mid-1970s. This raises the question of whether the United States faces a long-term dearth of workers, which if true could undermine the country's productive potential.…

The remainder of this commentary is available at bloomberg.com.


Kathryn Anne Edwards is an economist at the RAND Corporation and a professor at the Pardee RAND Graduate School.

This commentary originally appeared on Bloomberg on August 2, 2022. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.