The Economist - UK (2022-04-09)

TheEconomistApril9th 2022 63

Finance & economics

Thejobsboom

Too much of a good thing

L

ast monthJerome  Powell,  the  chair­

man  of  the  Federal  Reserve,  identified

the  most  uncomfortable  trade­off  in  eco­

nomics. “Today’s labour market”, he said at

a  press  conference,  is  “tight  to  an  un­

healthy  level”.  In  most  places  and  at  most

times a fall in unemployment, or a rise in

the number of people in work, is welcome.

But labour  markets  can  become  too

strained,  creating  worker  shortages  that

stop production and cause wages to spiral,

which can feed into overall inflation. 

Mr  Powell  fears  that  America  has

crossed  the  threshold  from  good­tight  to

bad­tight,  one  reason  why  the  Fed  is  sig­

nalling that higher interest rates are on the

way. Increasingly, though, labour markets

elsewhere in the rich world are also strain­

ing at the seams. 

Almost nobody saw this coming. When

the pandemic struck in 2020, most econo­

mists  believed  that  the  rich  world  was  in

for  a  long  spell  of  high  unemployment,

similar  to  what  happened  after  the  finan­

cial crisis of 2007­09. In April 2020 Ameri­

ca’s unemployment rate hit 14.7%. Had job­

lessness declined at its post­financial­cri­

sispace,theunemploymentrateinMarch

thisyearwouldhavebeenover13%.

Infact,it is3.6%.AndAmerica,bymany

standards,isa laggard.Ariseinthenum­

berofAmericanswhohavedecidedtheydo

notwanttoworkatall,andwhotherefore

donotcountasunemployed,meansthat

theshareof15­to­64­year­oldswitha jobis

slightlybelowitslevelattheendof 2019

(seechart1).Inone­thirdofrichcountries,

however,thisshareisatanall­timehigh.

Evenamongtheothertwo­thirds,which

includesAmerica,themedianshortfallin

theemploymentrateisjustonepercentage

point.It addsuptothequickestandbroad­

est­basedjobsboominhistory.

Canada andGermany are amongthe

countrieswithrecordemploymentrates.

ThesameistrueofFrance,knownforits

high joblessness. The working­age em­

ploymentrateinGreeceisthreepercent­

agepointsaboveitslevelin2019.Across

theoecdgroupofmostlyrichcountries

thereareabout20mmorejobsthanhad

beenforecastinJune2020.Thenumberof

unemployed peoplechasingunfilledva­

canciesisthelowestit hasbeenindecades

(seechart2 onnextpage).Evenaspricey

energyandrising interestratesprovoke

concernabouttheeconomy,thereislittle

signfrom“real­time”indicatorsthatde­

mandforlabourisdropping.

Whyisthejobsrecoverysofast?One

reasonisthenatureoftheshockthathit

theeconomyin2020.Historyshowsthat

financialcrunches—tightmonetarypoli­

cy, banking disasters and so on—cause

prolongedpain.Buteconomiesusuallyre­

cover speedily from “real” disruptions

suchasnaturaldisasters,warsand,inthis

case,a pandemic.In 2005 Louisiana’sun­

employment ratesoaredafter Hurricane

Katrinabutquicklyfellback(thoughpart

oftheadjustmentcamefrompeoplemov­

ing away). After the second world war

Europeanlabourmarketsrapidlyabsorbed

OMAHA AND PARIS

Are labour markets in the rich world tootight?

→Alsointhissection

65 Goodbye,QE.Hello,QT

65 Housing-marketfroth

66 Buttonwood:Stocksandinflationrisk

67 TrackingChina’seconomyinlockdown

67 An Indianmegamerger

68 Whypunterslikethepound

69 Freeexchange:ExperimentsinChina

Onwards and upwards

Employment rate*, %

*15-to 64-year-olds

Sources:OECD;TheEconomist †Estimate for Q4 2021

1

80

75

70

65

60

55

21191715131109072005

United States

Covid-1

Global financial crisis recession

Japan

Euro area†