Central bankers tend to view recent odd economic data as a temporary result of rapid post-pandemic reopening. That applies not only to uncomfortably high U.S. inflation, but also to job vacancies coexisting with high unemployment – a problem already showing up in the United States and Britain. Labour market mismatches are, however, here to stay.
The number of U.S. job vacancies rose to a record high of 10.9 million in July, the Bureau of Labor Statistics said on Wednesday. There were 8.7 million unemployed that same month, separate official data shows. People don’t always have the skills employers require or may not want to do jobs that need filling. Take the pace at which Americans are leaving leisure and hospitality, where average hourly earnings of $18.82 are the lowest of any sector. The so-called quits rate in these businesses was 5.1% in July, compared with 2.7% across the economy and less than 2% in the information industry or financial activities, where average hourly earnings surpass $40.
This isn’t a peculiarly American problem. Britain’s exit from the European Union has made it harder to tap workers from continental Europe and exacerbated the pandemic’s effects. Bank of England Deputy Governor Ben Broadbent in July pointed out a measure that tracks labour market mismatches by looking at sectors with vacancies and those in which unemployed or furloughed people last worked. There’s a relatively poor correspondence between the two recently. If that persists, staff shortages and rising wages could coexist with levels of unemployment higher than would occur if anyone could turn their hand to any job.
That’s a problem for central bankers, especially Jerome Powell. The Federal Reserve chair wants to lower unemployment rates for even the most disadvantaged groups but is confronted with high inflation. If that proves transient, as he expects, he can avoid tightening monetary policy too fast. But if staff shortages keep pushing up wages, price increases may persist.
True, the pandemic is causing short-term distortions. But the workforce of the future will need skills that many, especially the long-term unemployed, currently lack. The durable answer is for governments and companies to offer better training and educational opportunities for people of all ages. The cure for Powell’s headache lies outside his control.
(This article has been corrected to change the 2.7% quits rate in the second paragraph to refer to the economy, which includes the government. Previously the description referred to the private sector only.)