by Brad Houle, CFA
Principal
Fixed Income Research and Portfolio Management
One of the most surprising economic impacts of the COVID-19 pandemic has been the changes in the employment market. As highlighted in the chart below, the number of job openings in this country is twice as large as the number of unemployed people. This highly unusual situation defies a simple explanation. What happened? Where have the workers gone?
Source: Federal Reserve
During the pandemic, endless Zoom calls, a strong 2021 stock market and sharply rising home prices created a wealth effect that gave many aging workers the confidence to retire. This retirement acceleration resulted in two million workers prematurely leaving the labor market, leaving a vacuum in their wake.
Another missing demographic is the labor force from ages 20 to 24, which has declined 3.7% from January 2020 to August 2022. According to a National Student Clearinghouse Research Center report, they aren’t in college, where enrollment has declined by 7.4% or nearly 1.3 million students since the spring of 2020. While the gig economy may be employing some of the eldest members of Gen Z, their lack of presence in the workforce remains a mystery.
The nature of employment listings might explain the number of available jobs versus the unemployed. The cost and friction of posting jobs have declined materially due to the internet. In the past, the process was expensive and time-consuming due to the use of classified ads and employment agencies. Modern online job search tools allow companies to advertise open positions broadly and inexpensively. Due to the tight job market, companies are thought to be “double ordering” job openings in their search for quality applicants. There is also the possibility of double counting due to the cross-posting nature of online job advertisements.
A recent survey of Blackstone’s portfolio companies that, if combined, would be the third largest employer in the country, provides some further context to the labor markets. Of the CEOs surveyed, 90% said it was challenging to hire workers. Of the reasons cited by CEOs why hiring is challenging, 87% said that other job opportunities were a reason and 54% cited a change in attitudes towards certain types of work. The age-old remark of a decline in the worth ethic of today’s workers, particularly among young people, continues to be heard today. However, this report suggests a changing attitude toward lower compensated service sector employment jobs, which are often filled by the 20-to-24 age demographics.
Source: Blackstone
Employment data for August was released this morning with an increase of 315,000 jobs which exceeded expectations. Unemployment ticked up to 3.7% from 3.5%, which, while counterintuitive, is viewed as a positive sign as it indicates that more people are searching for a job. This increase in August unemployment indicates more Americans joined the workforce. Additionally, wage growth cooled a bit, which should be viewed favorably by the Federal Reserve.
Takeaways for the Week
Missing workers in the economy defy a simple explanation
A combination of demographics, changes in work preference and possible “double ordering” by employers have created a situation where there are twice as many jobs available as unemployed people
The August employment data showed that the jobs market is still robust. While some economic data is slowing, the health of the employment market gives us confidence that even if we have a recession, it should be a mild one
This week, the stock market is down more than 3% and the yield on the 10-year U.S. Treasury is up almost 0.15% to 3.19% following Federal Reserve Chairman Powell’s hawkish comments from last Friday’s Jackson Hole speech