Economics & Growth | Monetary Policy & Inflation | US
Summary
• US labour participation is an outlier: it has fallen by more and recovered by much less than in other advanced economies.
• This reflects higher US unemployment, a worse pandemic and insufficient childcare and parental leave.
• Participation could take several years to recover, but history shows this need not be inflationary.
Market Implications
• Flatter curve as a slower-than-expected participation recovery will likely see the Fed hike more aggressively than the market currently expects.
US Exceptionalism: Low Participation, High Unemployment
The absent recovery in US labour participation has many discussing ‘the Great Resignation’. This is a reassessment of the work-life balance away from work, which would reduce US labour supply, hinder sustainable growth, and add to inflationary pressures. But I argue for another explanation of the anaemic participation: the policy response to the crisis and structural features of the US labour market.
Summary
• US labour participation is an outlier: it has fallen by more and recovered by much less than in other advanced economies.
• This reflects higher US unemployment, a worse pandemic and insufficient childcare and parental leave.
• Participation could take several years to recover, but history shows this need not be inflationary.
Market Implications
• Flatter curve as a slower-than-expected participation recovery will likely see the Fed hike more aggressively than the market currently expects.
US Exceptionalism: Low Participation, High Unemployment
The absent recovery in US labour participation has many discussing ‘the Great Resignation’. This is a reassessment of the work-life balance away from work, which would reduce US labour supply, hinder sustainable growth, and add to inflationary pressures. But I argue for another explanation of the anaemic participation: the policy response to the crisis and structural features of the US labour market.
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