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April 2022, Volume 28, Number 2

Labor, Covid, Inflation

In March 2022 the US unemployment rate fell to 3.6 percent as job growth continued. The US had 152.5 million jobs in February 2020, and 150.9 million in February 2022 or 93 percent of pre-covid employment. Employment fell by 22 million between February and April 2020, and has almost recovered to pre-pandemic levels, but 20 million US residents who are 25 to 54 are not in the labor force.

Covid. Positive covid cases and hospitalizations fell sharply in spring 2022 as the more contagious but less dangerous omicron wave passed. Life began to return to normal as more people returned to offices, visited restaurants and engaged in other indoor activities.

Polls suggest that older Americans and Republicans are less worried about covid than younger residents and Democrats. Policies to counter covid further divided Americans, with Republicans stressing individual responsibility and Democrats emphasizing the need for government mandates to close businesses, mandate vaccines and masks, and support to poorer residents.

The great resignation from work continued in spring 2022, as the labor force participation rate remained below the 63.3 percent of February 2020, meaning that almost two-thirds of US residents 16 and older were employed or looking for work. Many baby boomers retired early during the covid pandemic, and many Gen Z workers in their 20s quit jobs in hospitality and other low-wage sectors to re-evaluate their life goals.

Over 47 million US workers quit their jobs in 2021, reflecting dis-satisfaction with labor market trends that began before covid. Job vacancies averaged over 10 million in 2021, prompting some employers to hire too many workers, assign them less than 40 hours a week, and determine who is reliable. Some workers who were frustrated with 20- and 30-hour a week jobs quit.

Wages for low-skilled workers are rising, but earnings may not increase if workers do not get more hours of work. Most employers in service industries rely on software that schedules employees to work only when they are needed. One study found that fast food workers averaged just two months of work in 2021 at each restaurant where they worked, although some quit one restaurant and moved to another.

Many firms outsource some of their work to contractors and staffing agencies, giving them more flexibility to match employment with consumer demand. Many workers employed by outsourcers have uncertain schedules; some are expected to be available for full-time work even if they typically work only 20 or 30 hours a week. Many workers who are employed less than 35 hours a week under just-in-time schedules are not eligible for employer-provided benefits such as health insurance and pensions.

The US Supreme Court in January 2022 declared that OSHA’s regulation requiring the 84 million employees of private employers with 100 or more employees to be vaccinated or tested weekly was an unlawful exercise of OSHA’s authority to keep workplaces safe. The USSC allowed a separate HHS mandate that 10 million employees of facilities that treat patients covered by Medicare and Medicaid must be vaccinated.

California in February 2022 re-introduced two weeks or 80 hours of supplemental paid sick leave for full-time workers at workplaces with 25 or more employees who are recovering from covid or caring for infected family members between January 1 and September 20, 2022. California requires three days of paid sick leave; the state’s previous supplemental paid sick leave law expired September 30, 2021.

Inflation. US prices rose seven percent in 2021, the highest inflation in four decades, as the price of housing, autos, and food rose; prices rose about four percent in Europe. Wages for low-skilled workers rose as businesses scrambled to hire, but real wages for many workers declined.

Dynamic pricing is spreading from airlines to grocery and home goods stores, allowing firms to change prices frequently. Online sellers can and do adjust their prices several times a day in response to supply and demand.

High US inflation reflects both supply and demand factors. On the supply side, the US labor force shrank and has not yet returned to pre-covid levels. On the demand side, the US government provided more stimulus aid than European governments, increasing the demand for goods. The unreliability of public and private services, from transit to schools to out-of-stock stores, led to dis-satisfaction that is blamed on both covid and inflation.

The Biden administration cited microeconomic factors such as large firms raising prices and called for anti-trust actions. Republicans, by contrast, cited macroeconomic factors such as payments to individuals and extended unemployment insurance that resulted in too much money chasing too few goods, allowing firms to raise prices. One reason for stagflation in the 1970s was the 1960s attitude that inflation is primarily a microeconomic issue.

The US economy strengthened in spring 2022 even as the Fed raised interest rates. Early in 2022, there were 900 tech startups each worth over $1 billion, as venture capital valued efforts to capitalize on artificial intelligence, nuclear technology, electric vehicles, and space travel at stratospheric levels. US startups raised over $330 billion in 2021, and startups that went public in 2021 were valued at $775 billion by the stock market, including that was valued at $40 billion.

Covid may mark a turning point for the economy, leaving a legacy of more government debt, persisting inflation and lower labor force participation. Before covid, a combination of weak consumer demand and an integrated global economy kept inflation low as aging residents in richer countries increased their savings, and this Japan-model appeared to be spreading to Europe and the US.

Government stimulus jump-started consumer demand, supply chains could not keep up, and inflation accelerated. The question is whether another round of globalization will reduce prices or whether reshoring or deglobalization and the switch to green energy will keep costs and prices high.

US government debt topped $30 trillion for the first time in January 2022, up $7 trillion from January 2020 due to pandemic-related spending. US GDP is $22.5 trillion, making government debt 133 percent of GDP. US government debt was $5 trillion in the mid-1990s and $10 trillion before the 2008-09 recession.

Neoliberalism or the Washington consensus in economics became dominant in the 1990s, when the US and other economies flourished as freer trade and private markets determined more prices and wages. Several foundations committed over $40 million in February 2022 to university research centers to develop alternatives to neoliberalism by focusing on inequalities, low-wage workers and new technologies.

The Biden administration released a report in March 2022 that concluded that the use of noncompete and nondisclosure requirements reduced worker wages by 15 to 25 percent. Outsourcing work to contractors who must compete with each other for jobs puts downward pressure on wages, according to the report, as do mergers that reduce competition between firms for workers.

H-1B. Foreigners who earn degrees from US universities in science, technology, engineering and math (STEM) may stay and work in the US for three years after graduation as optional practical trainees. USCIS in January 2022 expanded the number of fields that qualify as STEM and lengthened the period of stay after graduation in order to keep foreign talent in the US.

All foreign graduates of US universities may remain in the US up to a year after graduation for OPT, but STEM graduates can remain three years. USCIS also announced that J-1 visa holders can work in the US up to three years, double the current 18 months. These changes could provide more foreign workers to US businesses who cannot obtain H-1B workers.

Education. The US Supreme Court will consider cases brought by Students for Fair Admissions that alleges Harvard’s admissions program discriminates against Asian Americans and that the University of North Carolina’s admissions program discriminates against white and Asian applicants. A 4-3 USSC decision in 2016 upheld a University of Texas program that considered the race of applicants in order to achieve a diverse student body. UT administrators could “reconcile the pursuit of diversity with the constitutional promise of equal treatment and dignity.”

Some 43 million Americans owe $1.6 trillion in federal student debt, including over five million who are in default, meaning that they have not made any payments for at least a year; another $130 billion is owed in private student loans. It is difficult to discharge student debt in bankruptcy, prompting calls for the federal government to forgive up to $50,000 in student debt per borrower. President Biden pledged to cancel up to $10,000 in student debt per person, and suspended interest and principal repayments until May 2022 due to covid.

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