The US labor market is much less tight than perceived by a measure frequently cited by Federal Reserve Chair Jerome Powell as evidence of overheating, two economists at the St Louis Fed bank said.
Job vacancies are about twice the number of unemployed workers, an especially high figure, Powell said in his press conference following the Fed’s June 14-15 meeting. Yet adjusting the ratio of vacancies to also include employed workers who move to a new job shows a less-tight market, economists David Andolfatto and Serdar Birinci wrote in a post on the St. Louis Fed’s website.
“Everyone seems to agree that the labor market is very tight,” they wrote. “Given recent inflation, real wages for many workers appear to be declining. At the same time, profit margins appear elevated. How is this consistent with a tight labor market?”
The economists say using their adjusted measure, job vacancies relative to available workers is “closer to parity.” The adjusted ratio is still elevated compared with its historical average, but “considerably less tight.”
It makes sense to make the adjustment because many workers move from one job to another rather than from being unemployed to a job, they wrote.
In his Wednesday press briefing, Powell said there is “a lot of surplus demand.”
“Take for example in the labor market: So you have two job vacancies essentially for every person actively seeking a job, and that has led to a real imbalance in wage negotiating,” he said.
Andolfatto and Birinci’s perspective is also different to that presented by the economists’ boss, President James Bullard, who’s argued the job market is tight and “super strong.” At the same time, Bullard has said that the relationship between the labor market and inflation is very limited and has repeatedly downplayed any link between the unemployment rate and inflation.
-With assistance from Catarina Saraiva.
This article was provided by Bloomberg News.