Why is US labour supply so tight?

Goldman Sachs has released a new paper entitled “Why is US Labor Supply so Low?”, which is leading to wage pressures:

Goldman shows that US labour force participation rate has declined more since 2019Q4 than in most other developed economies:

Goldman ascribes four main drivers of the US’ low participation rate:

  1. About one-half of the US labour force participation rate shortfall is attributed to generous fiscal support, which has likely discouraged labour supply.
  2. About one-third of the shortfall is attributed to the way in which fiscal support was delivered via generous unemployment benefits instead of job retention schemes.
  3. Roughly one-sixth of the shortfall is attributed to virus fears.

The next chart decomposes the factors working to reduce US labour force participation:

Nevertheless, Goldman expects the US participation rate to rise by 0.5% to 62.2% by end-2022. This will occur on the back of a diminishing fiscal drag as savings are run down. However, participation will remain structurally below its pre-pandemic trend, since job losses have triggered permanent labour market exists, especially for older workers.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments are hidden for Membership Subscribers only.