The Recovery Was Going Well Until We Started Paying People Not To Work

Yesterday Forbes posted an article about the May Jobs Report. The article notes that payroll jobs rose by 559,000 in May, better than April, but much slower than March.

The chart below shows the changes in the Workforce Participation Rate during the last year (according to the Bureau of Labor Statistics):

As you can see, the coronavirus impacted the Workforce Participation Rate. The Workforce Participation Rate had been hovering at about 63 percent before the virus hit and the lockdowns occurred. Because of the additional money being paid in unemployment benefits, it may be a while before it goes back up to 63 percent.

The article at Forbes reports:

Perhaps the most important number in the jobs report was another notable increase in hourly wages: they rose by 6% on an annual basis, after also rising by 8% last month.

The combination of sluggish employment growth but rising wages tell a clear story: anecdotes about employers having difficulty hiring are true, and they are raising worker wages to attract or retain more of them. So labor demand (jobs) is rising faster than labor supply (workers).

What is holding workers back? The evidence here is less clear, but it is likely a range of factors: the $300 weekly bump-up in Unemployment Insurance payment likely plays a small role; it should matter most in leisure/hospitality where job growth was strongest, though perhaps slower than employers wanted. Recent news stories of workers refusing to go back to their old restaurant jobs suggests that workers there are tired of low wages, unstable hours and possible exposure to Covid.

Policies matter. I believe that if the Biden administration had just left the Trump economic policies alone, we would be in a much better place.