The Issue

In previous EconExtra posts this past year, we have discussed the Federal Reserve Bank’s “dual mandate” and the pandemic’s impact on both of them: inflation, and employment. This week’s Federal Open Market Committee meeting was much anticipated in light of the data released since they last met. Specifically, we have had two months in a row of price level increases not seen in years, and two months in a row of disappointing jobs numbers.

To manage its dual mandate of an average of 2% inflation and full employment, The Fed sets target interest rates and buys bonds to keep the economy moving forward. A detailed look at what is going on with jobs led Paul Kiernan of the Wall Street Journal to believe it may be time to adjust the “full employment” goals in light of some Covid-sparked phenomena. It appears that some of the Fed folks may be thinking the same way.

Specifically, how far the recovery has gotten in terms of the labor force has been measured in the remaining “gap” in jobs from just before the pandemic hit until today. That gap is still sitting at around 7.6 million. But the unemployment level doesn’t fit with that number, because if you add up the people who are working or want to work (labor force participation), the gap is only 3.5 million.

Even on this morning’s “Wait, Wait, Don’t Tell Me” quiz show, “The Big Quit” was the basis of one of the questions. Employers are raising wages and offering signing bonuses. But there still must be Covid-related factors influencing the decision to go back to work. How many will be resolved or reversed in the coming months, as vaccinations increase, and more businesses reopen, including schools and child care? Who left the labor force and why? How many people will never come back? 

“The number of people who left the labor force through retirement was higher during this pandemic recession-recovery than in previous recession-recoveries,” Cleveland Fed President Loretta Mester said June 4 on CNBC. “Typically, when people retire, they don’t come back into the labor force.”

In fact, many older workers delayed retirement in the Great Recession as their financial assets took such a big hit! Given the tremendous increase in the stock market (after the initial panic), and run up in home values over the past year, perhaps older workers felt comfortable leaving the workforce for good. Or they placed a relatively higher value on preserving their health, and left jobs that put them at risk. Or perhaps they left work to form a “pod” with their children and grandchildren to help out with childcare.

The decision to retire is (and should be) about more than the financials. (Investment News)

“Covid has helped retirees focus on the importance of well-being over wealth. A new study shows that the timing and funding of retirement have shifted as a result of the pandemic and that retirees are paying more attention to the nonfinancial aspects of retirement.”

The labor force participation graphs below may be helpful.  You can see the "recovery" by age group, and gaps persist across all ages. 

While men and women participate equally in the labor market, the responsibility for childcare falls primarily on women. That is one of the interesting points made by labor economist Betsey Stevenson during her interview by Ezra Klein (NYT) about what is going on in with the labor market during this recovery. (See also EconExtra: the “She-Cession”)  But looking at the labor force participation rates by gender, the differential between women and men looks pretty consistent.  (Delving into the participation rates by gender AND race may provide support for this argument for some groups.)

Potential Lesson Here

The Wall Street Journal discussion sets the stage here. By the time school starts and you hit the topic of the dual mandate of the Federal Reserve Bank next year, there will be more data and more discussion of how the Fed may have altered its measure or target for full employment. Have students pretend to be on the FOMC and make a case for which measure (the remaining shortfall of jobs from their peak, the number of people actively working/seeking employment, or something in between.)  FRED would be a good place for students to dig for data to support their position.

Also Of Interest

Which industries are feeling the labor shortage the most? If you are interested in a more micro level analysis, this Washington Post article really dug into the BLS data to answer that question.

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.