Labor markets remain strong despite predictions by some economists that the country may be heading into a recession. After a substantial increase in unemployment due to the lockdowns imposed at the onset of the pandemic, there has been a strong recovery in the demand for workers. At the same time, the availability of labor has been reduced as a result of increased government benefits, ongoing fear of contracting COVID, substantial reductions in immigration, an increase in people’s savings, career moves (and transitions to self-employment), and early retirement of older workers (Mitchell et al., 2021). The combination of strong demand for labor and a reduction in the supply of workers has led to shortages across the board, including in agricultural industries that are heavily reliant on labor like specialty crops.
The number of unemployed persons per vacancy since 2007 is shown in Figure 1. In the last fifteen years, the peak of unemployment was experienced in 2008 (during the Great Recession). Back then, there were almost seven people competing for every available job. In May of 2020, about two months after the start of the pandemic closures, the ratio was five people for every job. The latest data point (May of 2022) evinces that, two years after the onset of the pandemic, the ratio went down to 0.5. In other words, there is currently half a person available for every job posted or, equivalently, there are two open jobs for each unemployed worker!
Economic theory predicts that all else equal, whenever there is a shortage of a good or service, its price goes up. The cost of worker hours offered to the market is captured by total compensation, which includes salaries and wages, health and retirement benefits, and other monetary and nonmonetary incentives. Total compensation for civilian workers went up by 1.4% for the three-month period ending in March 2022 (first quarter), and by 4.5% for the twelve-month period spanning March of 2021 to March of 2022. Increases in wage rates, coupled with supply chain and other disruptions, have impacted all sectors of the economy, giving rise to inflationary conditions. In response, the central bank has started to increase interest rates (and thus borrowing costs) to cool down the economy. The effect of these changes on the labor markets will be seen in the following months.
Figure 1. Number of Unemployed Individuals Per Job Opening, U.S., May 2007 – May 2022
Figure 2. Three-month Total Compensation Percentage Change, U.S., 2017-2022
Mitchell, Josh; Weber, Lauren; and Chaney, Sarah. (2021). Wall Street Journal, Eastern edition; New York, N.Y. Article published the 15 of October of 2021.