The impact of the Federal Reserve’s decision on a labor market that registers an unemployment rate of 3.5% but record levels of worker resignations and unfilled positions is unknown to many analysts.
But a study by LinkedIn dares to put figures on the panorama that will leave the battle led by Jerome Powell against inflation and the ‘Great Resignation’: a rise of 1.5 points in the unemployment rate from the levels registered in July, to 5%.
Although for many citizens, a “romanticized” vision of the Great Resignation persists, in which millions of workers leave their jobs to find themselves far from unsatisfactory jobs, the truth is that the possibility of better working conditions weighs much more than a supposed ‘adventurous spirit’.
To understand it, it is enough to analyze what happened with the hotel and restaurant business. They were the sectors most affected by the pandemic. And yet, when it recovers, an evolution takes place that perplexes economists: its workers leave. But this is only the beginning of the mystery.
Because the analysis signed by Rand Ghayad, head of the Economy and Global Labor Markets at LinkedIn, yields a result that contradicts the thesis of the ‘adventurous spirit’: the majority of workers who resign find employment in the same sector.
The evolution of the relationship between vacancies and unemployment, expressed in the Beveridge curve, seemed to attribute the difficulty of filling vacancies to the lack of manpower willing to work in these sectors.
But Ghayad points out that this conclusion would be biased by the impact of “temporary layoffs” (the equivalent of the Spanish Ertes). With the reactivation of the economy, many of these workers have found themselves with companies that are in a hurry to hire and willing to pay better than their competitors. And this has given them more power to demand better wages. So why change the sector?
No ‘adventurous spirit’
By ‘drawing’ the evolution of the Beveridge curves without the effect of workers in temporary layoffs, the result makes it much clearer that the distortion is not due to a ‘leakage’ of talent, but to the fact that said talent presses to improve their working conditions, starting with salaries.
This is especially relevant for two reasons. First, it turns the ‘Great Resignation’ into a ‘Great Reshuffle’, which is precisely the term (Great Reshuffle) used by Microsoft’s professional career platform to refer to this phenomenon.
But it also broadens the range of effectiveness of the Fed’s policies to act without harming employment.
The US central bank is well aware that the ‘overheating’ of the labor market in the last two years has passed through to wages, and from there to prices. According to an estimate by the Chicago Fed prepared in February, this tension between job supply and demand alone would add 1.1 points to inflation.
But the fear that monetary policy will cause a traumatic increase in unemployment close to pandemic levels (when the unemployment rate far exceeded 10%) exists. Its echoes can even be detected in the Fed chair’s speech when he says the measures will bring “some pain.”
It won’t come free
“Although in theory it is not possible to reduce vacancies without increasing unemployment, the nature of the Beveridge curve and its change in slope offer a glimmer of hope in the tension surrounding the future state of the labor market,” Ghayad said.
In this sense, he points out that “a decrease in job offers to the level in December 2019 will be associated with an unemployment rate of around 5%.”
But it must be taken into account that in that month the unemployment rate in the United States was 3.6%. This confirms that the Fed’s policies will not come free in terms of employment.
Discounting the pandemic, one would have to go back to 2016 to find a figure similar to the 5% forecast by LinkedIn. But the impact is still far from the worst forecast for an economy that has already entered a technical recession.
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