The Tight US Labor Market: Missing Hours, Missing Workers

The Tight US Labor Market: Missing Hours, Missing Workers

A defining characteristic of the US economic system since 2021 has been the weird tightness of the labor market. The unemployment price, presently 3.5 p.c, not way back reached historic lows, whereas presently about 7 p.c of accessible jobs are unfilled, a traditionally excessive stage.

Labor markets can tighten if labor demand will increase or labor provide contracts. In Where Are the Workers? From Great Resignation to Quiet Quitting (NBER Working Paper 30833), Dain LeeJinhyeok Park, and Yongseok Shin give attention to current adjustments in labor provide. They report that between 2019 and 2022, the whole variety of hours labored within the American economic system declined by 3 p.c. They decompose this decline into extensive-margin adjustments — employees leaving the labor market — and intensive-margin adjustments — employees decreasing their hours — and break down these adjustments amongst demographic teams.

Reductions in hours of labor by these within the labor pressure, notably males with some faculty or bachelor’s levels, have contributed to labor market tightness.

On the intensive margin, as of November 2022 the labor pressure participation price was about 0.8 share factors under its prepandemic worth, reflecting a pointy drop in 2020 adopted by a sluggish and incomplete restoration over the following two years. The decline was strongest amongst males with out faculty levels, whose participation price is now 2 share factors under its prepandemic stage. This is a part of a longer-running deterioration within the labor pressure participation price of less-educated males. The decline has been strongest amongst youthful cohorts of males who have been of their teenagers or 20s throughout the Great Recession, maybe indicating that experiencing a recession throughout one’s youth can lead to long-run labor market precarity. Since the Great Recession, the labor pressure participation price amongst these cohorts of males has been persistently decrease than the charges of the earlier cohorts. The researchers argue that the occasions of the previous three years strengthened pre-existing traits in labor pressure participation.

Meanwhile, intensive-margin decreases in hours labored have performed a surprisingly necessary position within the decline in complete hours labored. Between 2019 and 2022, there was a 33-hour lower in annual hours labored per capita — the whole variety of hours labored throughout the 12 months divided by inhabitants measurement. Fifteen hours of this decline are attributable to the drop in labor pressure participation, whereas the opposite 18 are as a result of intensive-margin hours reductions amongst employed employees. These massive intensive-margin adjustments are a brand new phenomenon: earlier adjustments in combination hours labored have been pushed largely by extensive-margin changes.

The intensive-margin decline in hours between 2019 and 2022 has been largest amongst prime-age males. In distinction to the extensive-margin outcomes, although, hours have dropped probably the most for more-educated males — these with some faculty or a bachelor’s diploma. Men who have been beforehand working very lengthy hours and incomes massive quantities have reduce their hours probably the most. Among ladies, the decline in hours has been comparable throughout schooling teams.

These hours reductions usually tend to be the results of voluntary reductions in labor provide by employees than involuntary cutbacks as a result of declining employer demand. Survey proof exhibits a drop in employees’ desired hours over this era. In addition, given the tightness of the labor market total, employees who need extra hours may simply go away their present employer and discover one other job with longer hours.

— Shakked Noy