Covid-19 has caused permanent changes to the US job market, suggests a report from Bank of America economists.
As the economy recovers from pandemic-driven lockdowns and businesses begin to reopen or expand operations as more people get vaccinated, employers face shortages of both employee and contingent labor. The factors affecting labor supply are both transitory and structural.
While many workers who left the labor force during the pandemic should return in the near-term, mismatches between workers’ skills and job openings could lead to temporary shortages and stronger wage growth in certain sectors.
“A key concern in the US labor market recovery is the pace at which workers return to the labor force to meet strong reopening demand,” the report states. In addition to the 9.7 million workers officially reported as unemployed, Bank of America estimates that approximately another 4.6 million workers are not in the labor force due to the pandemic. A recent surge in retirements and long-run demographic trends will also make it difficult for the labor force participation rate to return to pre-pandemic levels.
Of the 4.6 million workers missing from the labor force due to Covid, 2.5 million should return to the labor market later this year as the economy accelerates through the reopening process, according to the report.
The report also estimates that about 700,000 workers left the labor force due to skills mismatches as they believe there is no work available in their area of expertise.
“It will take some time for these frictions to work themselves out, with workers perhaps returning to school to acquire the necessary skills or businesses offering training programs,” it states.
Childcare, unemployment benefits hinder workers’ return
The Bureau of Labor Statistics estimates that there are roughly 1.5 million workers on the sidelines because of issues related to Covid, and many workers —women, in particular — have dropped out of the workforce due to childcare issues.
“The good news is that these concerns are gradually subsiding and should ease over the summer as the vaccination campaign continues and the pandemic is brought under control,” the report states. “Childcare needs should also diminish as schools reopen for in-person learning next fall. As life gradually returns to normal, workers impacted by the pandemic should be ready to return to the labor force.”
Generous unemployment benefits are also contributing to low labor participation, with BofA estimates suggesting that those who previously made less than $32,000 per year would be better off collecting unemployment insurance benefits in the near term rather than working.
“However, we believe this dynamic will prove transitory as the additional $300 per week expires in early September,” it states.
Some unlikely to return
There is also a group of workers that left the labor force throughout the pandemic and are unlikely to return.
The economists estimate to date that an additional 1.2 million workers retired during the pandemic. This surge in retirees suggests that the labor force participation rate is unlikely to return to pre-pandemic levels.
“This spike in workers aged 65 and over retiring was led by a health shock that likely caused many older individuals to reconsider their priorities in life,” the report states. “Additionally, unlike other recessions in which asset values collapsed, equity markets quickly recovered after the initial Covid shock.”
Factors that are likely encouraging retirement include a stock market surging to all-time highs and home prices growing at a double-digit pace.
What can buyers do about the labor shortages and skills gap? CWS 3.0 will be covering these topics in different articles in the coming weeks.