On Monday, I have the privilege of running the Boston Marathon for a third time on behalf of the Dana Farber Cancer Institute. I love being part of the team—despite many difficult personal stories, the volunteers, organizers and runners are a very warm and positive bunch to train with. Moreover, the research conducted by Dana Farber is critical to winning more of the millions of individual battles that constitute the war on cancer.
Running for Dana Farber also gives me a way to participate in the Boston Marathon since, perhaps not surprisingly, I lack the athletic ability to qualify on the basis of past performance.
This is sad, but it is reality.
In my imagination, my running is as cool and strong as the Kenyans and Ethiopians who will undoubtedly lead the field. But the spectators who will cheer me on, as I stagger up the Newton hills, will see the truth, which is something a good deal hotter and weaker than I would like.
The same could be said of the American labor market, as portrayed in last Friday’s jobs report.
The weakness was evidenced in the headline job gain of 194,000, well short of the consensus expectation of 475,000, as well as a 183,000 decline in the labor force. These shortfalls were mitigated, to some extent, by a 169,000 upward revision in payroll gains for the prior two months, a decline in the unemployment rate from 5.2% to 4.8% and a modest increase in the average workweek.
Still, the economy has 5 million fewer payroll jobs and 3.1 million fewer people in the labor force than before the pandemic. Moreover, this is clearly a supply problem rather than one of demand. Tuesday’s JOLTs report is likely to show that there are still well over 10 million unfilled jobs in America, compared to now just 7.7 million unemployed workers. As confirmation of this problem, last week the National Federation of Independent Business reported that 51% of small businesses had positions they could not fill in September, a 48-year high.
Part of the problem may still be an industry-worker mismatch, as many jobs require skills that laid-off workers don’t have. There are also issues related to the pandemic and childcare that are likely keeping some potential workers out of the labor force. Finally, while enhanced unemployment benefits have ended, some workers may be able to postpone a job search for a while due to savings accumulated from government programs over the past two years.
However, we should also recognize the real limits to U.S. labor force growth. The labor force participation rate measures the percentage of the entire civilian population aged 16 and older that is working or actively looking for a job. As the baby boom continues to turn 65 in huge numbers, the measured labor force participation rate will tend to decline based on demographics alone. Indeed, it is notable that while the overall labor force participation rate has fallen by 1.70 percentage points since February 2020, (from 63.34% to 61.64%) the same statistic for those aged 25 to 54 has only fallen by 1.29 percentage points (from 82.89% to 81.60%). The problem is that this prime working-age population has actually declined in the last two years.
A second related problem, is that the pandemic and changes in U.S. regulations have combined to reduce immigration from a peak over one million people per year in 2015 and 2016 to, we estimate, roughly 250,000 in the past year. While roughly 61% of the overall U.S. population is between the ages of 18 and 64, according to the Center for Immigration Studies, 73% of new immigrants fit into this age category. A lack of new immigrants is limiting the pool of potential workers.