The disappointing jobs number last week have left many people wondering what happened. But unlike past recession recoveries, it seems clear this time the problem is not a lack of demand for labor. This figure plots the number of job openings as a percent of total employment. This spring the number of openings increased by 8.1 million and is now 16% higher than it was before the pandemic. People are not coming back to work for several reasons,: the extra unemployment benefit which means some workers lose money by going to work, lack of viable childcare, and lingering virus fears.
This time the demand-driven playbook of lower rates and giving people checks will not repair the labor market. And there could be more at stake than in a normal recession. Policy could be driving wages above their market rate. This could do long-lasting damage to small businesses on tight margins with little pricing power, who have already barely survived the last year.
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