Experts say and studies suggest that generous federal pandemic unemployment benefits reduced the U.S. labor participation rate, contributing to business difficulties in finding workers.
It found that the sharp increase in the aggregate hours gap (AHG), which was used to measure labor market participation during the pandemic, had largely faded away by the end of 2021.
The AHG was measured using Current Population Survey and Survey of Consumer Expectations data, which calculated an individual’s desired work hours to the actual hours worked.
The Chicago Fed found a sharp decline in workers’ desired work hours during the pandemic through the end the fourth quarter 2021, which tumbled two times the labor force participation rate.
Many unemployed Americans reduced their job searches during the pandemic due to the lack of job opportunities and fear of catching the virus, according to the Chicago Fed.
The study said that a decline in “desired work hours reduced the aggregate hours gap by 2.5 percentage points,” keeping the labor force participation down.
It was found that the U.S. labor market began to improve by the end of 2020, and that the national unemployment rate had started to fall, but that the labor force participation rate failed to recover as quickly.
Workers in jobs which required moderate or more levels of social contact during the first year of the pandemic preferred working less hours, while those with less social contact wanted more time to work. All of the workers surveyed wanted an increase in pay, regardless of the level of social contact at work.
Federal Assistance May Have Discouraged Employment Seekers
A report last month from the National Bureau of Economic Research (NBER) referred to one of its studies in December 2021, which found that the expansion of federally unemployment benefit programs during the pandemic actually discouraged many people from returning to work through the summer of that year.“The NBER research confirms that pandemic-era government stimulus in the form of direct payments created disincentives for individuals to return to work. This adds further evidence that those states that opened up earlier made the better choice for their economies, their businesses, and their citizens,” Mike Wilkerson, a strategic adviser and investor told The Epoch Times.
“States that paid people to stay home longer contributed to inflation both by the increase in the aggregate money supply (from the payments themselves) and by creating distortions in the labor market that resulted in higher wage costs and, ultimately, prices,” he continued.
The number of unemployed workers who returned to work rose primarily in states that opted out early from federal unemployment insurance programs, which were expanded during the pandemic.
The labor participation of workers between 25 to 54 years of age increased by around two-thirds if their states opted out of the pandemic aid programs between February through June, according to the Current Population Survey.
It also found that the share of unemployed workers in that age bracket who found employment rose by about 14.4 percent during July and August 2021, in proportion to the states that continued handing out benefits.
However, this disparity between states disappeared in September after federal funding for pandemic-related unemployment assistance expired.
Researchers estimated that the national unemployment rate for July and August would have fallen from 5.7 to 5.0 percent had all states opted out in June.
Meanwhile, the national employment to population ratio would have been around 0.1–0.2 percentage points more than it was during the period if state participation in federal unemployment programs was terminated.
“We present evidence that early termination reduced the share of households that had no difficulty meeting expenses by 5 percent,” wrote the NBER research team, using data from the Census Bureau’s Household Pulse Survey.
On the other hand, the NBER found that households facing financial difficulties rose after pandemic unemployment benefits ended, suggesting that certain states’ early withdrawal from unemployment insurance programs, led to mixed results.More Working Age Men Give Up on Work
Economists are even more worried about the 2.7 million men in their prime working years who dropped out of the workplace with little intention to work, while labor participation rates continue to drop this year.The tight labor market has led to increased inflation and rising wages, pushing the Federal Reserve to continue its aggressive campaign of interest rate hikes, which only further weakens the U.S. economy.
The central bank’s rate increases are intended to raise business borrowing costs and thus slow hiring and investment, but many analysts fear that this strategy will tip country into a recession by the end of the year.
Some economists believe that encouraging the able-bodied unemployed to enter the labor market is a better alternative to bring the worker shortage and pay increases to heel without sharply reducing job openings or increasing layoffs.
“The best way to achieve a loosening in the labor market would be to increase labor supply,” said Matt Colyar, an economist at Moody’s, in a note to clients.
Other experts believe that a loss of work ethic, easy handouts, and the marginalization of young men in the workplace in recent years have increased the number of Americans under 25 years of age on the sidelines.
“This wouldn’t be the first time government policy has hurt the economy. Government was handing out money like candy during the pandemic, and many Americans, particularly younger men, used these handouts to stay on the labor market sidelines,” Andrew Crapuchettes, CEO of RedBalloon, a job seeker site, told The Epoch Times.
“But even more important, we need to rediscover the joy of our work calling, and our career. If your work is meaningful, you'll want to be in the labor market. The younger generation needs to realize this.”
