U.S. employers added a robust 528,000 jobs in July 2022. This is compared to June’s 327,000 added jobs. Jobs lost during the pandemic are now fully recovered and the 3.5% unemployment rate is at a 50-year low.
The labor-force participation rate actually dropped to 62.1% in July from 62.2% a month earlier. Although all the lost pandemic jobs are recovered, there are still 623,000 fewer people in the workforce. I suppose this means more people are holding multiple jobs and less people are working. As for wage growth, average hourly earnings rose by 15 cents, or 0.5 percent, to $32.27 in July. Over the past 12 months, average hourly earnings have increased by 5.2 percent.
A few weeks ago, NPR ran a story about labor participation and long COVID. According to the article, it is estimated that 4 million full-time equivalent workers are out of work because of long COVID, which is 2.4% of the US working population, a shockingly high number! As mentioned previously, we might be in a stagflation situation due to long COVID. What we have observed so far seems to correspond with this hypothesis. Due to long COVID, less people are able to work. This has pushed up the wage and there’s still a labor shortage with low labor participation rate. What I am worried about is that we are in a productivity crisis: there’s a lot of demand for labor but not enough workers are able to work and some workers are less productive due to the COVID health crisis.
There’s interesting implications for this productivity crisis. First, this would create a wage spiral and keep inflation high. The Fed might have to keep raising rates to tame inflation and this would end the easy money era and crush the real estate sector. Second, lower wage workers are getting paid more, which is a good thing. Affluent workers complain about the price increases but they are still going to spend on food, energy, restaurant, hotels, entertainment etc because their wage is high enough to weather the inflation. Overall, this would reduce inequality, which is a very good thing. Third, I am curious how we help people who are going through (long) COVID. Do they get enough financial and health support? What is the total cost of COVID and how are we going to pay for it? What’s the long term consequences of lost productivity and government subsidies? These are the questions we have to grapple with in coming years.