The Radically Changing Labor Market


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“If economists get this month’s NFP number right, it was probably an accident”

-Ellen Zentner, Morgan Stanley (via Jonathan Ferro)


This month’s consensus payroll miss is no surprise. But focus on these three noteworthy numbers:

-0.4% drop in the unemployment rate, from 5.2% to 4.8%

-4.6% wage growth (annualized)

-11 million unfilled job openings

Those numbers are telling. But rather than rag on economists for being bad forecasters, it’s worth pointing out that the labor market is in the midst of a massive upheaval. The old models that were not that great to begin with are struggling, they are mostly useless when attempting to make sense of the current circumstances.

The data this month should also end the debate about Unemployment insurance preventing people from going back to their old crappy jobs. Now that the enhanced unemployment insurance has expired, it is no longer a viable reason for the difficulty in hiring. Something else is obviously going on.

Skip the NFP forecast, and instead consider the various cross-currents that must be accounted for trying to get a good handle on the labor markets:

• Wages have lagged most measures of the economy — since the 1970s;
• Technology keeps creating and destroying entire market sectors;
• Demographics is increasing demand for specific jobs, and not just in health care;
• Household balance sheets are as cash rich and debt managed as ever;
• Actual wealth in the US is at record highs;
• 18 months of remote work have changed peoples’ perception of their jobs;
• Early retirement is pulling workers away from the labor market;
• Childcare remains a challenge in most of the country;
• Covid-19 is still a threat to frontline workers.

Remember that this month’s NFP chart will be revised next month anyway, and instead have a look at the chart from Bank of America’s Haim Israel. Automation is inexorably driving huge numbers of jobs away. I suspect workers have figured for themselves they want to skip taking positions that will eventually be automated anyway. As we discussed back in July, the CARES Act monies flowed to people who recognized this — and so they learned new skills, got degrees online, trained themselves for new careers.

These days, the labor market is even more unusually dynamic than typical. It is not an exaggeration to suggest it is in the midst of a radical transformation.

The problem is not that economists cannot predict it; rather, it’s that they do not understand it.



Wages in America

Cutting Unemployment Benefits Does Not Increase Employment (September 1, 2021)

Elvis (Your Waiter) Has Left the Building (July 9, 2021)

Table Stakes (June 10, 2021)

Finding it Hard to Hire? Try Raising Your Wages (May 6, 2021)

Shifting Balance of Power? (April 16, 2021)





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