Workers Not Returning Is Bad For Inflation

Published on: 12/27/2022

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss the low supply of workers across the country and what that means for inflation going forward.

TRANSCRIPT

TONY:

Welcome to another edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager, Jeff Viksjo.  And Jeff today, we’re going to be talking about workers, the supply of workers in the country, and the fact that a lot of them haven’t returned and, really, what that means for inflation going forward. So, let’s take a look at our first chart, this has sort of have a technical name, this is the worker participation rate. And what can we glean from that?

JEFF:

If we just look at the bottom line is employment population.  The percent of the population that has a job, that is actively working.  You can see Tony, the big drop off during COVID.  That’s obviously to be expected.  But what’s not expected is that the line has come back, but not all the way back.  And it’s leveled off to the point where now it’s still lower than it was before COVID. So, we’re missing a large percentage of workers out there, and we don’t know why they haven’t come back to the labor force.

TONY:

Well Jeff, you know, there are a variety of reasons.  But what we can do is look at gender, and some little demographics, to give us a little bit of insight into it.  This chart, really interesting, it’s for males, the male labor participation rate.  And we see that it’s sort of unusual.  The males between 35-44 just are not returning back to the work force as we would expect them to.

JEFF:

Yea, and that’s an age group where you would expect them to need to work.  So, it’s largely unexplained why this one age range, between 35-44, has dropped out of the labor force.

TONY:

Yea.  And let’s take a look at women.  And again, we’re looking at sort of the same area, and we’re still seeing a deficit for women returning to the work force also.

JEFF:
And here there isn’t much of a difference between age groups, but they’re all lower.  So, all age groups, for women, are lower than they were before COVID.

And Tony, why this is a problem is we’re living in a high inflation environment.  And one of the things that’s contributing to the inflation is wage growth. So, employers are needing to pay their employees higher and higher wages.  And the reason is because there is not enough workers.  So, because of this, because people aren’t returning to the labor force the supply of workers, the available talent to hire, is low.  So, when that’s the case, you have to pay them more. And that’s contributing to the inflation.  It’s a problem for the Fed that they can’t seem to solve.

TONY:

Yea.  I mean, bottom line, a lot of this goes back to structural types of things Jeff.  If we don’t have adequate educational resources in this country, if we don’t have adequate childcare, if we’re not taking care of everybody in this country people are going to take care of themselves.  And if they can afford to drop out of the work force, they’re doing it.  And we’re seeing that right now.  So, it’s gonna make, like you said, the Fed’s job of trying to get a handle on inflation, very difficult.  Because, like we said, some of these issues are structural and won’t get handled overnight. So, interesting thought there.

Thanks much for joining us for this edition of Chart Talk.  We look forward to seeing you at our next talk.

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