When today's big jobs report arrives the labor force participation rate will be getting just as much attention as the headline number. Economists are looking for gain of 550K nonfarm payrolls for November, right near what ADP reported for private sector jobs. That would be more evidence of the substantial progress on the labor front that the Fed is aiming for, but not the breakout month of workers returning.
"For November, our model points to a mere 300K increase in private payrolls, but it has undershot in recent months so we look for a 500K increase, down from our previous estimate, 800K," Ian Shepherdson of Pantheon Economics says. "We'd love to be wrong about this, but the long-awaited surge to 1M-plus appears to have been delayed, again, suggesting that labor participation remains stuck in a rut."
"Chair Powell ... expressed surprise at the continued flat trend in participation, which remains the biggest single risk to the benign medium-term inflation story," he adds. "If participation fails to rise, the huge labor demand/supply imbalance will persist, and the Fed likely will have to hike three or four times next year."
The labor force participation rate is at 61.6%, steady for the last two months, and has not really budged this year. There are 3.1M fewer workers than before the pandemic and Wells Fargo estimates another 1M would have joined the workforce had the pandemic not happened. The distribution of missing workers is uneven, though.
Not coming back: Labor participation for those 65+ is down sharply and has shown almost no improvement through the pandemic and recovery. "The drop in the participation rate of seniors comes as the ranks of this age group has swelled, with more than half of baby boomers having already reached the age of 65," Wells Fargo economists Sarah House and Karl Vessely write in a note. "When compared against the prior trend and accounting for the growing size of this cohort, workers ages 65 and over account for nearly another quarter of missing workers, far more than their share of the pre-COVID labor force."
Many have retired and that becomes a huge hurdle for the labor market as only a small share of retirees move back in the labor force and retirees are 1/5 as likely to return to work than those not wanting a job for other reasons, they say. "COVID's grim reminder of mortality could also persist beyond pandemic, prolonging the trend toward earlier retirement," they add. "Stronger financial positions - wealth among households ages 55-69 is up 18% since the end of 2019 - also point to the pattern of earlier-than-otherwise retirements persisting for at least a while yet."
Looking for the tipping point: Women aged 25-54 are the biggest pool of missing workers and childcare is the chief reason. At the same time, daycare center employment is down 10% from before the pandemic and recovery will be tough as labor is by far the industry's biggest cost, making it harder to boost wages while competing sectors do, Wells Fargo notes.
Current "inflation pressures stemming from higher labor compensation are likely to pull more workers back into the labor force, as the trade-off between work-leisure tilts back toward paid employment," House and Vessely say. "This tipping point is likely to be closest for young workers. In contrast to prior downturns, young workers have not fled the labor force in favor of additional education; overall college enrollment for Fall 2021 was down for a second straight year." (
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