Two bits of analysis around the jobs market I wanted to cover. Both are from Axios.
First, new research from Cleveland Fed shows that the millions laid off during the pandemic had vastly better outcomes than workers fired in the aftermath of the prior three recessions since 1990. After those downturns, workers, on average experienced earnings losses of about 20% within the three years after their displacement — twice as large as that experienced by fired employees during economic expansions.
But those fired during the pandemic recession, on average, experienced virtually no wage losses at all. In fact, “workers displaced from their jobs in 2020 who were reemployed by January 2022 had no statistically significant change in their earnings by January 2022,” the researchers wrote. They found that neither generous pandemic-era jobless benefits, nor the composition of fired workers, were likely explanations for why workers fared notably better.
Instead, it was the collective effect of the “sharp recovery in labor market tightness” that explains why, in aggregate, workers were able to make up lost pay and get better jobs — unlike past recessions.
And second, quote. A central idea at the core of mainstream economic models is that inflationary pressure goes up when the unemployment rate goes down.
The opposite has happened over the last year — creating a core mystery about the job market. The recent combination of low and falling unemployment with falling wage inflation is a dream scenario in practice. But it isn’t supposed to work that way in theory.
In effect, the Phillips Curve — the relationship between the unemployment rate and inflation — is, for the moment, at least, upside down.
If the pattern continues, it would allow inflation to continue moderating even as the job market remains robust.
We’re getting some insights into why conditions are different than previous the more it’s studied, and I’m inclined to offer that this may be a better year than predictors (myself included) thought it would be.
Let’s note that a tight labor market is a good sign for the robustness of SMB clients, yet also a limiting factor on growth. A good problem to have versus unemployment, of course. Proceed with awareness.