The US labor market continues to recover as worker absences due to illness or injury decrease by almost 25% in December compared to the previous year. This decline can be attributed to the reduction in COVID-19 cases as the nation gradually recovers from the pandemic. The Centers for Disease Control and Prevention (CDC) reported a decrease in the weekly average of COVID-19 cases, which aligns with the improved worker attendance. The US added 216,000 jobs in December, indicating a broader recovery in the labor market. However, the labor force participation rate has yet to fully bounce back to pre-pandemic levels. The Federal Reserve is closely monitoring labor market conditions as it considers interest rate adjustments to combat inflation. Some sectors, like leisure and hospitality, are still facing workforce challenges, while others, like healthcare and professional services, are experiencing growth. The demand for workers and employers' readiness to raise pay are likely to reinforce Federal Reserve policymakers' resolve to keep rates elevated until they see further evidence of cooling price increases throughout the economy. The labor market is still restrained by factors such as child care obligations, health concerns, and a lack of job opportunities in fields devastated by the pandemic. Lower-paid and lower-educated workers, as well as women, particularly young women, are experiencing a slower recovery, as indicated by the labor force participation rate. Federal Reserve Chair Jerome Powell noted that the nation's real unemployment rate hovers closer to 10 percent, highlighting the ongoing challenges in the labor market.
The labor shortage in the United States remains a significant issue, with 1.7 million fewer Americans in the workforce compared to February 2020. Currently, there are 9.5 million job openings but only 6.5 million unemployed workers. The decline in labor force participation is a long-standing issue, with the overall share of the population participating in the labor force dropping over the years. Several factors contribute to the labor shortage, including early retirements, an aging workforce, low net international migration, lack of access to childcare, and increased savings due to enhanced unemployment benefits. The Great Reshuffle, where many Americans are quitting their jobs in search of better opportunities, has also contributed to the labor shortage. The U.S. Chamber of Commerce is working on solutions to attract and retain new workers, recognizing the need to address the underlying factors causing the shortage.
Despite the ongoing labor shortage, the US labor market continues to show signs of recovery, with job additions and decreased worker absences. The Federal Reserve's monitoring of labor market conditions and potential interest rate adjustments reflects the importance of a balanced recovery. While some sectors face workforce challenges, others are experiencing growth. The labor market's recovery is still hindered by factors such as child care obligations, health concerns, and limited job opportunities in certain fields. The ongoing challenges in the labor market, particularly for lower-paid and lower-educated workers, highlight the need for continued efforts to address the labor shortage and ensure an inclusive recovery.
U.S. workers, especially low-wage workers, experienced exceptional wage growth over the past couple of years, reducing wage inequality. Different measures of wage growth show gradually declining rates that remain elevated compared to pre-pandemic levels. Wage growth has become somewhat less egalitarian but remains more equitable than before the pandemic. The stability of the labor market and declining job openings and quit rates suggest slower wage growth. The relationship between wage growth and productivity growth is normalizing. Current labor market fundamentals are in line with those seen in 2019, and sustaining this labor market should be a primary goal of policymakers. High interest rates are already hurting poorer workers and families, and a policy-induced recession would worsen the situation.
A shortage of women in the workforce continues to cause long-term economic challenges for the US. The labor force participation rate has been declining over the last twenty years, and the COVID-19 pandemic further exacerbated this decline. Women represent 47% of all US employees, but inequities remain. The overall share of women participating in the labor force lags compared to pre-pandemic levels. Men have returned to work at a higher rate than women. Factors contributing to a lower labor force participation rate for women include childcare responsibilities, the prohibitive cost of childcare, lower wages compared to men, lack of workplace flexibility, and women being overrepresented in lower-paying jobs. The business community is implementing solutions to address these obstacles, such as flexible work arrangements and investing in childcare solutions. The US Chamber of Commerce Foundation is calling for investments in childcare and helping employers navigate additional childcare support for working parents. Prime-age women in the US have driven much of the increase in the overall labor force participation rate over the past five years, reaching their highest labor force participation rate ever in recent months. However, participation rates vary greatly for prime-age women in different demographic groups. The post-pandemic increase in labor force participation among prime-age mothers with young children has stalled out in the past several months. Labor force participation growth has been widespread among groups of prime-age women, including foreign-born women, mothers with at least a bachelor's degree, and women with disabilities. The labor force participation rate among prime-age mothers with young children has fallen somewhat since its peak in September 2023. Prime-age women have contributed the most to the growth in aggregate labor force participation, but mothers with young children are less likely to be participating now compared to April-May 2023. Prime-age women continue to power the recent labor force recovery, despite the challenges they faced during the pandemic. The labor force participation rate for prime-age women in the US reached about 78 percent in January 2024. Prime-age women make up 30 percent of the civilian labor force. The labor force participation rates for prime-age women vary by race and ethnicity, educational attainment, marital status, nativity, and disability status. The labor force participation rates for prime-age women in different demographic groups have increased over the past year and are higher than they were in May 2019. The overall labor force participation rate for prime-age women has increased by 0.57 percentage points over the past five years. The increase in the propensity to participate did not offset the decrease related to changes in the population composition. Participation growth among prime-age women is contributing the most to net gains in the aggregate labor force participation rate, but mothers with young children are less likely to be participating now compared to April-May 2023. Participation growth may be peaking among prime-age men, but not among prime-age women. Prime-age women continue to power the recent labor force recovery despite the challenges they faced during the pandemic.
Labour force participation tells us how many people are active in the labour market and how many have dropped out of it. The labour force participation rate measures everyone of working age who has a job or is looking for one as a percentage of the total working age population. Labour force participation in Canada is relatively high, with about two-thirds of people of working age being part of the labour force. This is influenced by factors such as more women working than ever before, high levels of immigration, and the state of the overall labour market. Labour force participation is an essential piece of the puzzle in understanding the labour market and the economy overall.
Demographic ageing is putting pressure on industrialized countries, including the United States. Inclusive labor force participation is crucial to mitigate the economic impacts of population ageing. Disparities in labor force participation at the intersection of race/ethnicity and gender exist, and closing these gaps could add millions of people to the labor force. Closing gender gaps in labor force participation within ethno-racial groups could add 14.3 million people to the labor force, while closing racial/ethnic disparities could add approximately 6.5 million people. Addressing educational and health disparities could add around 2.6 million workers. By closing gender and racial/ethnic gaps and improving education and health, the labor force could increase by 9 million workers. Targeted policy measures to close gender and racial/ethnic gaps in labor force participation have proven effective. Policies that increase female participation and address educational and health disparities are important for inclusive labor force participation. Inclusive participation can enhance the labor force and maintain a more favorable economic dependency ratio. Strategic and inclusive policy interventions are crucial for managing demographic aging and ensuring a sustainable labor force participation rate [11a8f217].