Flood of Workers Has Made the Fed’s Job Less Painful. Can It Persist?

Hotels in New York’s Adirondack Mountains have seen a surge in immigration this summer and a steady supply of seasonal aid that was hard to come by during and immediately after the pandemic, making it easier for hotels to hire.

For companies like Weekender, a brand with seven rustic hotels in and around the area, this makes staffing less stressful. This summer, the company succeeded in hiring six cultural exchange coordinators, up from four last year to six. And similar stories are unfolding across the country, which is good news for the Federal Reserve.

Fed officials are trying to keep inflation in check by raising interest rates and slowing the economy. Much of the challenge lies in restoring balance in the labor market. 23 consecutive months There were clearly more jobs available than workers to fill them. Officials fear that the competition for workers remains fierce and that if wages continue to rise as rapidly as they have in the past, it will be difficult to stem the rapid rise in prices completely. Companies that pay high prices to attract workers will try to charge even higher prices to cover the climbing workforce.

The Fed can help cool the labor market by reducing demand, but it’s getting more help than expected from the rising supply of workers. The last few months have seen an influx of workers into the labor market that surprises policy makers and many economists.

Part of this development is due to a rebound in immigration as the United States eases pandemic-related restrictions, clears processing backlogs and enacts more tolerant policies. Labor supply has also been boosted by the return of some demographic groups, including women in their prime, to the job market in greater numbers than expected, with record employment rates.

This influx has made the Fed’s job a little easier. Employment was able to hold firm without further overheating the labor market. workers are becoming available Instead of people who are mad.Unemployment is stable around 3.5 percent, And there is even data to suggest that staffing burdens are being reduced.For example, wage growth is starting to slow and workers no more pulling such a long time.

“It’s part of monetary policy to move demand toward supply, but the good news is that more supply can help,” New York Fed President John C. Williams said. in an interview With this month’s Financial Times.

Employers are adding about 280,000 workers per month by 2023. Employment growth has slowed over time, but it is almost three times faster than Fed Chairman Jerome H. Powell’s 100,000 pace. he suggested that he expected to need To provide employment for a steadily growing population.

The growing labor supply has allowed the Fed to accept faster-than-expected hiring without putting the brakes on the economy more aggressively. Fed officials raised rates from near zero to above 5% in March 2022, but the pace of rate hikes has become increasingly gradual in recent months. Policymakers are expected to raise interest rates by half a percentage point at this week’s meeting to a range of 5.25-5.5%.Many investors are betting The decision to be announced on Wednesday Fed’s final move at the moment.

What the Fed does for the rest of 2023 depends on economic data.Has inflation slowed significantly? from the peak Will June 2022 continue to moderate? Will job growth and wage growth continue to decline? If the economy maintains significant momentum, officials may feel the need to take new action this year. When it gets cold, the stop rate may increase comfortably. In either case, policymakers have suggested that interest rates will probably need to remain high for some time.

As for the labor market part of the puzzle, key officials have indicated that they believe the next steps to restoring balance could be more difficult. Policy makers have welcomed the newly found labor supply in recent months, but some doubt the trend will continue. Williams suggested that immigration momentum could continue, but that participation — the percentage of people working or looking — might be difficult to increase significantly.

“I don’t think there’s much room for it to continue to be a big driver of supply and demand rebalancing,” Mr. Williams said in a July interview, explaining that the Fed needs to continue with policies that keep labor demand in check to keep inflation down.

Some economists and labor groups believe officials like Mr. Williams are overly pessimistic about the prospects for continued improvement in labor supply. Immigration is still on the rise, and flexible remote work arrangements could enable people who could not work in past eras to do so now.

“The capacity of the labor supply side continues to improve, and I think the Fed is probably underestimating it,” said Skanda Amarnath, executive director of Employ America, a research and advocacy group focused on the job market. “I think it’s probably still underrated.”

Labor shortages began to worsen in the second half of 2020 as the workforce pool shrunk due to massive layoffs and immigration curbs.of private labor force The number, which includes people working and looking for work, plummeted to 8 million in early 2020.

Since then, however, the supply of workers has recovered by about 10.6 million. Part of this recovery is due to an increase in the foreign-born labor force, which accounts for about one in three potential workers added after the war. Pandemic low pointbased on Ministry of Labor data.

Legal immigration picks up steam as backlogs are cleared and Biden administration policies are allowed more refugees Julia Gerritt, associate director of the U.S. Immigration Policy Program at the Institute for Immigration Policy, said: Illegal immigration is also prominent, increasing due to political turmoil abroad and the pull of a relatively strong and stable US economy.

“Immigration has increased significantly,” Geratt said. “We are certainly returning to pre-Trump, pre-pandemic normalcy.”

Documented migrant recoveries are also evident from visa data. If current trends continue, about 1.7 million workers could enter the country this year, about 950,000 more than at the low point during the pandemic, said Macropolicy Perspectives economist Courtney Spurt.

In fact, immigration may be even stronger than before the pandemic, when the policies of former President Donald J. Trump reduced the number of foreigners entering the United States. He said the number of potential workers entering the country on visas in May alone was about 50,000 higher than normal between 2017 and 2019.

Immigration is not the only potential source of new labor. Employment rates are rising across the board, handicapped and Women aged 25 to 54 Perhaps the rise of remote work and the shift to more flexible working hours during the pandemic is pushing more people to work to new heights.

“The greater flexibility in the workplace has created an unprecedented supply of workers,” said Diane Swonk, chief economist at KPMG.

The end result has served businesses like the Adirondack’s Weekender Hotel. The company’s six cultural visa employees, spread across three of its seven facilities, are a minor but significant portion of its 85 workforce, according to company founder Keir Weimer.

The company is also generally less competitive for employees after years of adaptation. Weimer estimated wages had risen by 10% to 15% over the past 15 months, but said wage growth was starting to slow.

“We are now starting to be more clear about career-track promotions, where wages are tied to performance and promotions, not just the market,” he said. “Wage pressure is definitely lower than it was a year ago.”

Of course, the supply of new labor can also boost demand. Harvard University economist Jason Furman said the more people work, the more money they make and spend, thus counteracting the impact on inflation. This is not to say that improving the labor supply is useless.

“It’s a way to increase the pace of job growth without inflationary pressure,” he said.

But even as employers and economists welcome the gradual normalization of the labor market, the supply of workers faces a major headwind of an aging population. America is aging as the baby boomer generation enters retirement and the opportunities for older people to work are greatly reduced.

This has led some Fed officials, a suspicion shared by some economists, that an increase in labor supply could do a lot of the heavy lifting as the labor market rebalances.

“I think the supply shortage will continue,” said Elena Shulyatiyeva, senior economist at BNP Paribas.

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