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U.S. Labor Market Is Even Tighter Based on Alternative Measures

Bloomberg logoBloomberg 2/23/2022 Katia Dmitrieva
Workers walk into an office building in New York. © Photographer: Michael Nagle/Bloomberg Workers walk into an office building in New York.

(Bloomberg) -- The U.S. labor market is even hotter than the picture given by an unemployment rate nearing a 50-year low, according to research by some economists that warns of sustained inflationary pressures.

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Goldman Sachs Group Inc. economists led by Jan Hatzius found there’s a shortage of 4.6 million workers, the most since the World War II period. That figure compares the total number of jobs -- including the near-record for those still open --  and the size of the labor force, or the number of people employed plus those looking for work.

In separate research this week, economists including Jason Faberman at the Federal Reserve Bank of Chicago found that the labor force is smaller than traditional data suggest. That’s because more people don’t want to work, and those who do want fewer hours. By their measure, which relied on a survey from the New York Fed, the job market at the end of 2021 was already tighter than the pre-pandemic period. 


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The research points to a drastically reshaped labor force coming out of the pandemic that traditional indicators may not capture. It also highlights that employers are set for an even tougher -- and more expensive -- year finding workers. Wages will jump 5% in 2022 as companies fight for talent, Goldman economists said in a note to clients last week.

A recent research paper by another group of economists measured the so-called natural rate of unemployment, or the jobless rate needed for inflation to remain stable. That measure rose from about 4.5% before the pandemic to 5.9% by the end of 2021, mostly due to strong wage growth, they calculated. The current rate, at 4%, is comfortably below both figures.

That adds pressure to prices, and will keep underlying inflation 0.5 percentage points above trend even by the end of 2023, according to the authors, including Marc Giannoni at the Dallas Fed and Ayşegül Şahin at the University of Texas at Austin.

The estimates of job-market tightness come even as payrolls are 2.87 million lower today than in February 2020. The labor force, which captures working age people who either have a job or are looking for one, remains about 900,000 lower since that time. Job openings and the quits rate are hovering near record highs. 

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