Got a Labor Shortage? Make It Easier to Work

Federal Reserve Chair Jerome Powell insists that the tight US labor market isn’t primarily to blame for today’s high inflation, pointing instead to other culprits such as commodity prices, supply chain problems and the war in Ukraine. Rather than a weakness, he argues, the demand for scarce workers is instead a sign that a recession is still not upon us. Right as he might be on both accounts, a persistent worker shortage could still be a very big problem in the longer run.

For a full two years before the pandemic hit, and for the past 11 months, job openings have exceeded the number of people looking for work – a phenomenon not seen in data going back to 2000. In the short term, this can be healthy, providing a rare and much-needed boost to wages and coaxing people such as the long-term unemployed back into the labor market. By reviving the supply of workers, the excess demand can ultimately satisfy itself.