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Is the labor market even tighter than we thought? Researchers argue in a new paper that the number of hours Americans want to work during the pandemic has declined even more sharply than labor force participation. (National Bureau of Economic Research) |
NH: We all know the labor force participation (LFP) rate remains stubbornly low. (See “Is Labor Force Participation Down for Good?” and “Was the October Jobs Report Good News?”)
But now a working paper from the National Bureau of Economic Research argues that the labor market is even tighter than we thought.
The researchers evaluate labor market underutilization through a new measure they call the aggregate hours gap (AHG). This measure is "the difference between individuals’ desired work hours and actual hours worked, regardless of labor force status." It tries to correct for an obvious shortcoming of the LFP or employment, which merely measures the number of Americans who are looking for a job or who have a job.
Neither the LFP nor employment considers people who aren't currently looking for a job who may still consider working (sometimes called "discouraged workers"); nor does it consider how many additional hours working or nonworking Americans may still want to work.
Sounds interesting. But how can we measure average "desired" or "potential" hours across the population. Well, it turns out that the Survey of Consumer Expectations (published monthly by the NY Fed) includes a Job Search Supplement that already does such a survey. Essentially, the authors show that this desired or potential hours measure is a reliable indicator of labor market tightness over time.
Great. So now let's move on to what this potential v. actual hours gap says about what's now happening.
Between February 2020 and December 2021, desired work hours fell -4.6%. That decline is twice as large as the decline in the LFP rate over the same period (-2.3%).
That means the AHG widened. Put a bit differently, the average desired hours (per week) sank from about 32 just before the pandemic to under 30.5 today, which again is a much greater fall in percentage terms than the LFP rate.
So who reported the largest decline in desired work hours? There was little difference by age. The drop was a bit larger for women than men. And by education level, those without a college degree reported a much larger drop.
Moreover, the researchers concluded, the most significant decline was “concentrated among… individuals who prefer to work infrequently, and when they do, they generally prefer part-time work hours.”
These are, in other words, people who are outside of the labor force but could be drawn back into employment as wages and labor conditions improve. These "out of the woodwork" workers are not included in the LFP--and they are the ones whose desired work hours have dropped the most.
One remaining question is whether this rising gap has been triggered by the pandemic. The authors agree that much of it probably was, but doubt that fear of infection or acute illness is the driver since both of these have been declining rapidly in recent months.
True enough. But the authors do not discuss the role of Long Covid, which we consider an important and generally neglected driver of lower employment rates and tighter labor markets. (See "The Long Shadow of Long Covid," “Reasons Americans Aren’t Working,” and "The Impact of Long Covid Keeps Growing.")
Long-Covid sufferers fit the profile described by the authors: Less educated (and thus more likely to be unvaxed and previously infected); women (more likely to manifest Long Covid symptoms); and out of the workforce with little desire to work (because they still have little ability to work).
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ABOUT NEIL HOWE
Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.
A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.
Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."
Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.
Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.
Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.
