There's no doubt that the COVID-19 pandemic has altered the labor force landscape in the last two years — but will businesses ever return to a pre-COVID
The latest jobs report from the U.S. Bureau of Labor Statistics reveals that while 528,000 jobs were created since May, the labor force shrunk by 63,000. The labor force participation rate now stands at 62.1%, but the disparity between jobs gained and a dearth of workers in the economy remains difficult for businesses to ignore.
"As businesses were adding more than half a million jobs, people were leaving the labor force," says Curtis Dubay, chief economist in the Economic Policy Division at the U.S. Chamber of Commerce. "Usually those things go in the same direction, and there's not such a big gap."
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Dubay underlines that the U.S. economy has still not recovered all of the workers it has lost since the start of the pandemic. In fact, an estimated 3.4 million workers are still missing from the labor force. This means that even if every currently unemployed person took an open job, there would still be millions of available positions left unfilled.
So what's keeping people out of work? Dubay points to three categories: COVID, savings and lifestyle changes. For example, workers may have developed long COVID and are unable to work due to disability, or find themselves taking care of a loved one with severe COVID. Child care also remains inaccessible for many parents across the country, with daycare centers shutting down because of COVID and care costs rising to over $14,000 a year. Ironically, both parents may not be able to afford to go to work.
While finances are a concern, U.S. households gained about $2.5 trillion in excess savings since March 2020 from government stimulus and higher wages, which hints that some Americans can afford to step away from the labor force. Meanwhile, some Americans may have chosen to retire early, go to college or take time to switch to a new industry.
"I don't know the relative sizes of any of these issues," says Dubay. "I just know that when you add all those reasons up, you get 3.4 million missing workers."
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However, Dubay predicts that by the end of the year, this trend will shift, especially given how the annual inflation rate in the U.S. accelerated to 9.1% in June of 2022, and the cost of living continues to rise. Not to mention, the latest CDC guidelines on COVID have advised against mandatory quarantine and still only require five days of isolation for positive cases. Bottom line: people will have no other choice but to work.
"COVID is not going to be an issue keeping people out of work for much longer," says Dubay. "And as inflation continues to take a toll on people's savings, they will be forced back into the labor force."
With the risk of a recession still uncertain, Americans have already started to reign in their spending, as data from Barclays notes that travel and restaurant spending is now half the pace of 2021 rates. Regardless, Dubay is certain employers need a bigger workforce to navigate whatever is to come in the U.S. economy.
"The economy may be slowing down, demand may be coming down and businesses are having a hard time producing their goods or offering services with the workforce they have," says Dubay. "Businesses need more workers, regardless of inflation and whether or not we're in a recession."
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Dubay also finds that the pandemic has made it harder to collect data for government agencies and private companies, leaving an incomplete picture of the state of labor in the U.S. Ultimately, it's difficult for anyone to speak in certainties about the economy or the labor force, as trends may prove to be unpredictable in the coming months.
"Any issue that your own employer is experiencing, the government is experiencing as well," he says. "They're having a hard time getting workers, and they're having a hard time getting people on the phone. It's just a whole new world."
