Roughly 4.6 million workers exited the labor force during the pandemic, a Bank of America analysis reported. But the majority of those workers don’t plan to rejoin the labor force until the end of next year, Joseph Song, the leader of the effort, said in a letter to clients.
Song pointed to the enhanced unemployment benefits pumped out over the last year as a key indicator over why some jobless workers may not be returning to the labor force for several months, as President Joe Biden’s $1.9 trillion rescue package offers $300 weekly unemployment bonuses through September. Song noted that Americans earning less than $32,000 prior to the economic crisis would be better off collecting unemployment benefits, rather than working, Fox Business reported.
“Low-wage workers currently have a disincentive to work due to generous UI benefits, which may be contributing to the labor supply shortage,” he said. “Both of those dynamics should be largely sorted out by September and could encourage more workers to return to the labor market.”
Bank of America estimated that 2.5 million Americans are expected to rejoin the workforce by the fall, while 2.1 million people may be slower to return to work, if at all. Another 700,000 workers reportedly left the workforce due to skill-related reasons.
Song cautioned that there is a “high risk” that the labor participation rate may never fully recover. Economists have also warned that the hesitancy to enter the labor force could trigger an unexpected wage hike as businesses scramble to fill open positions.
Federal Reserve Chairman Jerome Powell covered these concerns after a two-day meeting for the central bank.
“My guess is we'll come back to this economy where we have equilibrium between labor supply and labor demand,” Powell said. “It may take some months, though.”
Powell said that parents may have no other option but to stay at home, especially if their children are still enrolled in remote instruction.
“Clearly there's something going on out there, as many companies are reporting labor shortages,” he said. “We don't see wages moving up yet, and presumably we would see that in a really tight labor market. We may well start to see that.”
The chairman also rejected the argument that jobless benefits may be disincentivizing workers to return the work, noting that it’s too soon to understand their impact.
“I do also think that unemployment insurance benefits will run out in September,” Powell said. “So to the extent that's a factor—which is not clear—it will not be a factor fairly soon.”
Song also suggested workers may be hesitant to return to work due to being fearful of contracting the deadly disease that’s killed almost 575,000 Americans, according to the Centers for Disease Control and Prevention data. But experts anticipate that the fears will subside as vaccinations ramp up across the country.
Rachel Bucchino is a reporter at the National Interest. Her work has appeared in The Washington Post, U.S. News & World Report and The Hill.