After a bloody June, we had a very green first trading week of H2 2022. I suppose it’s good. There’s quite a bit of good news too. Mortgage rate and oil prices are both dropping. Unemployment rate is low at 3.6% compared to 3.5% pre-pandemic and wages climbed 5.1%. Labor participation rate is still 1.2 percentage point below the pre-pandemic level though: 63.4% vs 62.2%. In other words, we are in a very tight labor market.
I listened to the latest all in podcast episode and they attributed the tight labor market to stimulus money. I am not sure I agree with that. There’s a big labor shortage in the service sector. Those jobs usually don’t pay very well and require very physical labor. I had some experience running a restaurant (with my failed Zumplings experiment). Let me just say the restaurant jobs are so hard every time I received a job application I had to think why this person doesn’t go drive for Uber or deliver for DoorDash. When COVID shutdown the restaurants, with the unemployment relief, a lot of the restaurant workers ended up having time to reflect and to upskill for better jobs. I think it’s actually great for the workers. But then it created a vacuum when the restaurants reopened.
Furthermore, as mentioned in the previous post, we now have a sicker population due to COVID-19. The services jobs typically have very high covid risk as these jobs require many human interactions. It’s entirely likely many of the service workers ended up being too sick to work or having to be a caretaker of their sick family members. I would also imagine most of the stimulus money, crypto money, play the market money already ran out. My guess is that people are already back to work but we only have so many healthy workers available. We will have to live with this until the population get more healthy. More public health effort is likely required.
Another factor less mentioned in the media is the displacement of labor. Lots of people move around during the last 2 years, creating a geographical mismatch in demand and supply. I was at Truckee and there's a shortage of staff in the restaurants business (empty tables but can't be seated). Turns out they can't hire enough people because bay area people rushed to buy places in Truckee during the pandemic, forcing out the service industry people that's been renting.