Chronic. After a sharp contraction in employment at the height of the pandemic, the unemployment rate in the United States has returned to its pre-Covid-19 level (4%). In France, the unemployment rate fell in the third quarter of 2021 to 7.4%, practically unheard of since 2008.
As inflationary pressures build due to problems in the global production chain and the possible effects of the Russian invasion of Ukraine on energy and food prices, labor market tightness could raise fears of a descent into an inflationary spiral. This is formed when workers are able to obtain wage increases to compensate for the increase in prices, which in turn lead to higher prices, and so on.
Our ability to absorb inflationary pressures will therefore greatly depend on tensions in the labor market. The unemployment rate of 7.4% seems to leave a large margin. But it is probably greatly overestimated.
In the United States, we have been observing, for several months now, the phenomenon known as “the great resignation”. In November 2021 alone, four and a half million people quit in the United States. Many of these people, however, do not leave the workforce, but change jobs to take advantage of better pay and working conditions in sectors that are picking up again after the pandemic, such as catering. If these resignations result in rehiring, the overall impact on the labor market will be neutral. The relatively modest decline in labor market participation (-2.3% between 2020 and 2021) seems to indicate that this would be the case.
However, a recent study suggests that official statistics greatly underestimate the tensions in the labor market and that the labor supply has indeed fallen compared to the pre-pandemic period (“Has the Willingness to Work Fallen During the Covid Pandemic?”, Faberman, Mueller & Sahin, National Bureau of Economic Research).
Structural change
The survey conducted by the three American economists is formal: people now want to work less in the United States. On average, desired hours of work fell by 4.6%, twice as much as the drop in labor force participation. This is quite unique in the context of an economic recession. Typically, recessions are characterized by workers working less than they want. The recession due to Covid-19 has generated the opposite phenomenon.
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