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The State of Labor Markets in the US and in California (July 2023)

Mr. Clément Boullé, Ph.D. Economics candidate, M.S. Management and Finance

© International Foundation for World Freedom


The labor markets in the United States have undergone a remarkable transformation in recent years. From the rise of automation and technological advancements to the impact of the COVID-19 pandemic, many factors contribute to reshape the way we work and the opportunities available to individuals. In this article, we will explore the current landscape, exploring the lasting effects of the pandemic, the rise of remote work and the evolving dynamics that are shaping the future of work.


The decline in labor participation

After the COVID-19 pandemic, the United States have witnessed a concerning decline in labor force participation, the proportion of adults that work or are actively looking for work. After a large drop in 2020, this rate has been increasing slowly but is yet to reach its pre-pandemic level. The current rate stands at 62.6% which represents nearly 2 million “missing” workers compared to February 2020.


This decline has created a significant labor shortage: there are more job openings (around 10 million) than unemployed workers (around 6 million). This imbalance between supply and demand is especially strong in the food service and hospitality industries which struggle to retain workers asking for better wages and the option to work from home.

This trend, coupled with the surge in inflation, has placed considerable pressure on wages throughout the US. On average, wages have seen a 5% increase in 2022, reflecting the need for employers to attract and retain talent in a competitive job market. Interestingly, the rise in wages appears to be more pronounced for workers who have changed jobs compared to those who have remained in their current workplaces.


Did workers benefit from this labor shortage?


Geographical disparities are an important component to understand the current state of local labor markets. As the Midwest and South of the US experience the brunt of the labor shortage, some states like California, New York or Massachusetts show minimal signs of scarcity. The case of California is especially interesting as the local unemployment rate rose to 4.47% in April 2023, a 0.3% increase over the last year. This increase is mainly driven by large firms restructuring their workforce and impacts massively highly educated workers.


On the other hand, the rise in prices of essential products (+6.7% for food, +8.7% for shelter, +10.2% for transportation services) outpaced the growth in wages, even in fast-growing low-wage sectors. Rents have also dramatically increased, specifically in San Francisco or Los Angeles. This increase has been concentrated in low-rent units, despite stringent rent control regulations. Together, these trends suggests that workers’ quality of life is unlikely to have improved during the last year.


Overall, it feels that labor markets are currently characterized by a strong mismatch. On the one hand, firms have many open vacancies for low-wage jobs that workers are unwilling to accept. On the other hand, high-wage sectors slowed down and saw a relative decline over the last year. More than ever, there is no unified labor market but rather a collection of markets based on regions and sectors which experience contrasting dynamics.


Conclusion

The labor markets in the United States are ongoing a period of fast transformation. The rise of remote work and the decline in labor participation creates massive vacancies in some sectors and regions, especially in more rural areas. On the other hand, large cities such as Los Angeles or San Francisco experience rising unemployment rates and high inflation which negatively impacts living conditions and quality of life. Nonetheless, labor markets seem to continue their recovery from the 2020 pandemic even though this recovery that has different shapes in different places.


Recommended readings:

  • The U.S. Bureau of Labor Statistics (https://www.bls.gov) provides statistics and press releases. It has many detailed figures across sectors and regions, most of the time at the county level.

  • The website Investopedia (https://www.investopedia.com/economics-4689800) provides many memos explaining economic concepts and theories. It is a great tool to learn the fundamental ideas of economics.

  • The U.S. Chamber of Commerce released a series of short articles regarding the labor shortage (https://www.uschamber.com/workforce/understanding-americas-labor-shortage)

  • Wikipedia is always an undervalued resource. The page on labor markets is well documented and will link interested readers to more specific topics. (https://en.wikipedia.org/wiki/Labour_economics)





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