Greater Number of Workers Outside Labor Force?

Tight labor market but a greater number of workers still remain outside the labor force. Did you know?

First, what is meant by “labor force”? Let’s define it. The LF is made up of people who currently hold a job or are actively seeking a job. Therefore, a person who is not employed and also is not looking to become employed isn’t considered part of the labor force.

In early 2020 when the pandemic hit, businesses closed down with many never reopening again. At that time, a larger than usual proportion of the labor force was without work. Some got other jobs, some kept looking, and others (millions) left the labor force completely.

What were the causes?

• Early retirement

• Self isolation due to the pandemic

• Taking care of loved ones

• Frustration with their “unsuccessful” job searches

• Benefiting from the continued increased FED unemployment benefits. There were many enhanced benefits as well.

Therefore the number of people NOT in labor force spiked during breakout of pandemic in 2020 but as you can see on chart the numbers are still elevated from pre-pandemic. So as more workers re-entered the labor force over the following year, the line has come down as there are LESS “not” in labor force.

More people are NOT in labor force from pre-pandemic. There are about 2.2M more people outside the labor force which is most likely contributing to the current tightness in the labor market.

This will take time and most likely further tightening and removal of liquidity which may force many to go back to work. We shall see in time.

Will it be new industries that emerge as a response to the current challenges? Opportunities always emerge from challenges and new industries are birthed as solutions to existing problems. For example, productivity is declining with less output/input. Therefore, AI has been shown as a solution to increase productivity. I believe we will continue to see a surge in AI, autonomous equipment, robotics, and more.