A mystery of the American labor market

According to the Organization for Economic Co-operation and Development, an association of advanced economies. Eurozone voter turnout was also well above its pre-pandemic level in the third quarter, the latest for which data is available.

While much of the decline in the US labor force is due to retirement, its participation rate for those aged 25 to 54 has also fallen more than in other countries.

The Labor Department reported Friday that the U.S. voter turnout was 62.2% in January from 61.9% in December. However, the increase was due to new population estimates introduced in January. If they had been applied in December, participation would not have changed.

The sources of this gap could help answer another question: why is US inflation higher than in other countries? It appears to be a combination of stronger demand and tighter supply, including labor.

One of the causes of the divergence is the different approaches to supporting workers in the early months of the pandemic. European governments have historically sought to keep workers in their jobs during downturns, and Japanese companies have long prioritized retention. Instead, the United States directly supported laid-off workers, facilitating the transition to new jobs and new industries.

During the pandemic, European and Japanese employers furloughed rather than laid off employees, with governments subsidizing the wages of furloughed workers. The United States had its own version, the Paycheck Protection Program, which provided repayable loans to businesses that retained employees, but the impact was relatively small. Most of the federal help came from improved unemployment insurance for millions of laid-off workers.

As a result, ties between employers and employees were more likely to be severed in the United States than in Europe. Such bonds take a long time to recover, notes Izumi Devalier, head of Japan’s economy for Bank of America. “Usually it’s not a big deal because demand only recovers gradually…but Covid ended up being a different kind of shock because demand went back down very quickly,” she said. . So when US employers started recruiting again, many former workers had already moved on or left the workforce.

However, different wage subsidies cannot explain why take-up is lower in the United States than in Canada, where the subsidy scheme was similar to that of the United States and not particularly effective, according to Miles Corak, a Canadian economist. teacher at City University. from New York.

Here, the Covid-19 may have played a role. The cumulative number of infections and deaths from the virus is about three times higher, per capita, in the United States than in Canada, which almost certainly affects the will and ability to work. Monthly labor force surveys in the United States show that the number of people absent from work due to illness was on average 50% higher last year than in 2019. During the same period, the Canada’s corresponding survey showed that 16% more workers missed a full week of work due to illness or disability and 13% fewer missed part of a week.

Japan’s pandemic experience has been even less severe, with 10% of infections and 5% of deaths, per capita, similar to the United States. Madame Devalier found it.

Linking labor market outcomes to a country’s experience with Covid-19 is tricky when so many other factors are also at work and the data is not strictly comparable. Income and wealth gains in the United States may have made early retirement or furlough easier for Americans worried about Covid-19 or unhappy with their jobs.

Nevertheless, the reduction in labor force participation helps explain why the United States is an exception in many respects. Strong demand has propelled rapid growth since mid-2020, but employers trying to meet that demand have faced persistent labor shortages. The job vacancies/unemployed ratio is close to a record high. Employers are therefore asking current employees to work harder: employment has lagged further behind in the United States than in other countries, but the total number of hours worked has not changed.

Employers also pay more to attract and retain workers, with labor costs rising far more in the United States than in other countries, the International Monetary Fund has found. This is one of the reasons, but not the main one, why inflation in the United States is also higher.

This evidence suggests that if Covid-19 becomes more predictable and less deadly after the Omicron wave passes, as many health experts hope, then the obstacle it poses to work should also ease.

Stefano Scarpetta, director for employment, labor and social affairs at the OECD, noted that European labor markets are often divided between secure, well-paid jobs and precarious, low-paid contract jobs. If you have a secure job, “you think twice before leaving the labor market because it is much more difficult to come back”. This bifurcation does not exist in the United States, so workers are more likely to drop out of the workforce knowing they can return easily.

But there is no guarantee that Covid-19 will recede or that when workers who have left the labor force decide to return, jobs will be as plentiful as they are now.

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