A Jobless-less Recession?

~500 words, ~ 3 min reading time

One of the strangest prospects we currently face: the jobless-less recession.

Q1 real GDP is supposed to be down – like literally down as opposed to “below trend”. (I say “supposed to be” because this is an “advance” estimate, which is going to be revised a couple of times.)
Meanwhile, the unemployment rate (those without jobs who are actively looking for work) is very low – under 4%. 2.4 million more people were employed in March 2022 vs. March 2021. (Of those, roughly half are people who weren’t even looking for work in March 2021.) Put another way – the “Great Resignation” doesn’t seem to be people leaving the workforce entirely (at least not at a macro level) – it’s people leaving one job to take another.

Even using the broadest measures, which add in those who want a job and looked for work in the past year even if they’re not actively looking for work recently, PLUS those who are working part time but want a full time job, that measure is almost as low as headline unemployment was a year ago.
Anyway, dropping production tied with rising employment suggests that labor productivity has dropped significantly. Why? Well, that’s an interesting question to which I don’t have a great answer. Some speculative thoughts:

(1) There’s been something of a “youngening” of the workforce over the past couple of years – with more 16-17 year olds working and fewer 45+ year olds working. Dropping productivity could reflect a loss of human capital (experience, training, etc.).

(2) Shortages for specific materials + labor hoarding. Example: there’s a chip shortage. While employers could lay workers off since they literally can’t produce at the moment (or at least can’t produce at typical levels), in this environment that’s a really dangerous choice since there’s no guarantee you’ll be able to hire people back. So, businesses are hoarding labor even if it’s not immediately productive so that they’ll have workers on hand when shortages resolve.

(3) The Great Resignation was, in part (perhaps mostly), people looking for jobs that had more flexibility rather than more pay. People are looking for a better “work/life balance” or better working conditions. These traits tend to decrease physical productivity (the kind GDP measures) even if they improve overall well-being (with which GDP is generally correlated – generally people with more stuff feel better off – but of which it is not a measure).

(4) Another part of the Great Resignation was people leaving a job for another with higher pay. However, it might be that these jobs “overpay” early in an employee’s career (relative to productivity) but underpay later. This is especially likely if the job requires significant employer-specific skills/knowledge which take some time to learn, and which don’t improve the employee’s likelihood of finding a higher paying job later after these skills/knowledge are acquired. So, productivity fell because people moved into jobs for which they don’t yet have the skills/knowledge needed to be very productive.

I may be missing something very important, since these are just quick first guesses. But, it is pretty fascinating to be in a world of rising employment, dropping GDP, and high inflation…

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