No one predicted the labor market shortage that has emerged. “People aren’t going back to work,” Patterson noted.
If employers are lucky, the labor force participation rate could return to the 62.4% area, or 1% below the 63.4% rate before the pandemic. “Technology also changed the way people work,” Patterson said. So did various degrees of emotional stress brought on by Covid-19.
The Fed enters 2022 finding itself in a very precarious position, according to Vanguard. At the onset of the pandemic after tens of millions of jobs were lost, it made a conscious decision to stand aside and let various segments of the job market recover.
Now, the central bank is much more focused on the wage side of employment. Patterson said the Fed wants “to avoid a wage-price spiral like the 1970s.”