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May 7, 2021

Labour shortage may slow US economic recovery – leading macroeconomic influencers

Federal employment schemes and the fear of the virus are keeping a greater number of people out of the labour force threatening to impact the recovery of the US economy.

A fear of contracting the Covid virus is making some people in the US unwilling to go back to work, which may slow economic recovery. Some parents are forced to stay home as they do not have access to child care, while others are staying at home as they are receiving more money in the form of unemployment benefits than they would normally earn when working.

David Wessel

David Wessel, director of Hutchins Center on Fiscal & Monetary Policy, shared an article on employers in the manufacturing and restaurants sectors of the US are having a hard time hiring people. Job openings are higher than those recorded before the pandemic in March 2020, but the number of people in the labour force is low.

Employers added more than 900,000 jobs in March despite the labour shortage and the figure is expected to touch one million in April. Unemployment claims also declined to low figures of 498,000 last week for the first time since the start of the pandemic. The labour shortage, however, threatens to derail the recovery of the US economy as it is forcing businesses to forgo on work and restaurants to keep some of its sections closed.

Although labour shortages are expected to ease as a greater number of people are vaccinated and unemployment benefits expire, the process could take months while the impact of the shortage is being immediately being felt. Some employers are raising wages to attract workers, but this could translate to higher prices for customers and lower margins for businesses.

Adam Tooze

Adam Tooze, director of European Institute, shared an article on Brussels’ new action plan aimed at implementing a social pillar in Europe in three key areas of employment, skills and poverty.

The plan aims to increase the employment rate for people aged between 20 and 64 years to 78% from the current 73%, while ensuring that 60% of adults are involved in some training each year. The plan also aims to reduce the number of people at risk of poverty by 15 million.

Brussels intends to present the action plan at the Social Summit in Porto, Portugal. The article noted that expanding the social pillar can improve employment rates and competitiveness of the economy. Europe has already demonstrated its economic resilience during the pandemic, compared to the US and UK, with its pre-existing welfare schemes. The existing system only needed additional funds in some parts of continental Europe.

Further, a social model can act a engine for productivity as it boosts employment, offers flexibility to shift to new jobs and enables quick adoption of technology.

Linda Yueh

Linda Yueh, economist at the University of Oxford, shared an article on the Bank of England (BoE) raising UK economy’s growth forecasts to 7.25% in 2021, the fastest since 8.7% expansion recorded in 1941, although it follows the biggest drop in three centuries of 9.8% in 2020. The BoE revised the previous growth forecast of 5% in February owing to easing of restrictions, increase in vaccine rollouts and projected increase in consumer spending.

However, the bank lowered the growth forecast for 2022 to 5.75% from the previous estimate of 7.25%.

It also retained lending rates at an all-time low of 0.1% and bond-buying programme at £895bn ($1.2tn). The BoE also projects inflation rates to remain at 2% over the medium term, while unemployment rate is projected to slightly peak to 5.4% in the third quarter of 2021.

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