Millions of workers are still missing from the US workforce three years after COVID-19 hit, and economists are scratching their heads about how big the gap actually is and where all these people have gone.
One estimate found that at least 2.1 million withdrew earlier than expected. Another calculated a deficit of 2 million immigrants at the height of the pandemic. Other research has pointed to a million or more out of work due to long-lasting COVID.
There’s also no agreement on the overall size of the hole: how many more Americans would be working in 2023 if not for the pandemic. That’s a problem because Federal Reserve officials need to know whether Americans are temporarily or permanently out of the workforce so they can set monetary policy, said Anna Wong, chief US economist at Bloomberg Economics.
“It’s a very confusing picture,” Wong said. “We don’t even have good facts to work with.”
With the unemployment rate at a 53-year low and more employees on payrolls now than before the pandemic, how can workers really be missing?
The labor force is the sum of employed and unemployed, and some researchers point to an estimate by Fed economists of how large it should be based on population trends. Assuming people continue to work at pre-pandemic rates, they projected a workforce of 168 million by the end of 2022. In reality, the figure was around 165 million, coming to a deficit of around 3 million.
Things got even more confusing this month when the Labor Department revised its December nonfarm payrolls tally by more than 800,000 additional workers. So that 3 million-person hole in the workforce may actually be a third smaller, Wong said.
What does it give? Economists acknowledge that data on what motivates workers to leave is hard to come by and that the trends underlying their research, such as declining immigration, have changed over the course of the pandemic. Finally, some workers can be counted more than once, such as baby boomers who have retired due to the long-term COVID.
The labor force participation rate – the share of the population who is working or looking for work – stands at 62.4%, stubbornly below the pre-COVID level of 63.3%. Had the pre-pandemic average rate held, the labor force would have had 1.1 million more people in 2022, according to a forecast released this month by the Congressional Budget Office.
Different economists, however, have conflicting theories about how many missing workers there are and where they have gone.
Didem Tuzemen, a senior economist at the Kansas City Fed, calculated in a report last October that there would be 2.4 million more people in the workforce if participation rates hadn’t fallen during the pandemic. Most of the missing workers are older Americans, she noted.
While many older workers initially left the pandemic workforce due to ill health, others have chosen to hang up their hats for good. Fed Chair Jerome H. Powell cited research by central bank economists showing “excess pensions” account for more than 2 million missing workers, but that has not been updated for the Labor Department’s review.
An above-average number of deaths in recent years, mostly from COVID-19, accounts for about 400,000 people of the workforce shortage, according to the Fed. The pandemic has killed far more people — about 1.1 million — but most were older and more likely to be out of the workforce.
Harvard University economist Raj Chetty and his colleagues tracked down another category of missing workers in a recent article: low-wage service workers who were displaced from their jobs early in the pandemic and never returned. . This is best illustrated by payrolls in industries such as leisure, hospitality and restaurants that are still lagging behind pre-COVID levels.
The researchers focused on affluent areas of big cities like New York, where office staff stopped cutting their hair and eating out because they were working from home. It is very likely that those neighborhoods still lack low-income workers today.
Elsewhere, UC Davis economists found that immigration slowed to a standstill during the lockdowns. This led to 2 million fewer working-age immigrants in the United States by 2021 than if previous trends had continued. While that could have accounted for a large chunk of missing workers at the height of the pandemic, immigration has since increased and likely plays a smaller role in America’s shortage of workers today, said UC Davis professor Giovanni Peri.
Finally, long-term COVID is an underappreciated culprit in the missing worker mystery, according to Katie Bach, a nonresident fellow at the Brookings Institution. Last August, she estimated that prolonged COVID has reduced the US workforce by the equivalent of 1.6 million people, accounting for those who worked fewer hours or left altogether. It’s probably now down to somewhere in the 500,000 to 1 million range, Bach said.
“I’m not wearing my boxing gloves and I’m not going to say anyone is wrong,” said Michael Stepner, an assistant professor of economics at the University of Toronto who co-wrote the paper with Chetty. “We all want a simple one line explanation. But I think this is a puzzle that has many pieces.
Bloomberg writer Ben Steverman contributed to this report.