Where are the workers, really?

For the most part, the jobs numbers released

Friday were great: stronger-than-expected job growth, near-recordlow unemployment, hiring across most major sectors of the economy.

None of these measures signals an economy in recession, despite widespread perceptions among voters that we’re already in one.

One troubling puzzle remains, though. Where did all the workers go?

Labor force participation — the share of adults either working or actively looking for work — plummeted early in the pandemic. Which was not surprising under the circumstances. Lots of businesses shuttered as customers stayed home; many Americans who were worried about exposure to illness decided to avoid offices or other workplaces for a while; and child care was in unusually short supply, pulling parents out of the workforce.

The federal government also provided lots of financial support to enable Americans to continue paying their bills even if they were not employed, through stimulus checks, moregenerous-than-usual unemployment benefits and other programs.

But since then, the economy has basically reopened. Consumer spending, and overall economic output, are well above pre-covid levels. Federal stimulus checks have stopped, and unemployment benefits are back to their standard levels of generosity. Job openings are plentiful, with millions more vacancies than there are unemployed workers to fill them.

And yet labor force participation still remains depressed, relative to pre-pandemic days. In fact, the share of people in the labor force has been declining in recent months. So has the share of the working-age population that is actually in a job:

This is not a sign of a healthy labor market. It’s not great for inflationary pressures, either, since labor shortages have been contributing to supply-chain issues and price growth. In remarks earlier this week, Federal Reserve Chair Jerome H. Powell noted there are roughly 3.5 million fewer workers today than the Congressional Budget Office’s pre-pandemic forecast of labor force growth had predicted.

Powell offered a few possible factors for this continued deficit, including higher-than-expected levels of retirements.

Retirements have indeed exceeded the numbers that would have been expected from population aging alone. This might reflect both continued covid risks (since older people are more vulnerable) and huge appreciation in asset values. Home prices and stock markets have fallen recently, but they’re still up relative to February 2020, providing a decent nest egg for many retirees. Even if you look only at the so-called prime-working age population (those age 25 to 54, so not yet traditional retirement age), labor force participation is still down.

Recently, it has been falling, too.

The question is why. One possible explanation is that the pandemic is still affecting the workforce; many Americans died, and others previously infected might be struggling with “long covid.” Child care also remains scarce. The industry employs 8% fewer people today than it did in February 2020. Other parts of the care economy, such as nursing homes, are also struggling to find workers, which in turn can made it harder for people in other industries to stay employed.

Levels of lawful immigration — including of immigrants authorized to work — were also severely depressed in 2020 and 2021, as Powell noted. Visa issuances (for people newly receiving green cards, as well as those in other work-eligible categories) have rebounded this year, according to an analysis from the Migration Policy Institute. But the recent increase is still not up enough to offset the cumulative deficit of “missing” immigrants who never arrived over the previous two years.

Foreign-born men are also much more likely to participate in the labor force than their native-born counterparts.

It’s true that temporary, pandemic-related federal safety-net programs have largely stopped, with some limited exceptions. Household savings still remain elevated, though, thanks partly to the federal payments Americans received and squirreled away in 2020-2021. That could theoretically make it a little easier for some people to sit out the labor force for a little longer than they might otherwise, though the evidence on this issue remains mixed.

Note also that lots of states have also recently rebated parts of their budget surpluses back to taxpayers (i.e., cut residents new checks). This could have also helped enable consumers to increase their spending even if they didn’t work more hours (or at all).

Finally, there has been much speculation about whether the pandemic could have shifted Americans’ attitudes toward work: how much they value time with their families, what kinds of working conditions they’re willing to put up with, and how many hours (if any) they really wanted to continue punching the clock. Americans in lots of fields report high levels of burnout, too.

So, maybe people are sitting out the labor market because they’ve reevaluated their priorities.

But on the other hand, perhaps they’ve been more comfortable shifting their priorities — that is, felt they could take a break from the grind, without suffering severe hardship — because some temporary economic conditions suddenly made less-work-intensive lifestyles possible.

Remember: Their savings cushion has been unusually large, by historical standards. Job openings remain plentiful, perhaps assuring people they can return to work quickly and easily whenever they’d like — so no rush.

If there’s a recession, as there might well be next year, both of those sources of comfort could disappear.

Consumers have been drawing down their accumulated savings, with the monthly savings rate in October hitting its second-lowest level on record since 1959. And there might not always be a fallback job available, if families need more earnings in a pinch.

All of which is to say that we might see a lot of workers who’ve been sitting on the sidelines reevaluate their choices soon.