Though some lawmakers hoped ending pandemic-era unemployment benefits would jump-start the labor market, less than one fifth of Americans cut off from the federal government’s pandemic-era unemployment benefit program will return to work by year’s end, Goldman Sachs analysts said Monday, noting other contributing factors—including Covid fears and surging self-employment—should keep some people from work for months to come.
Though they acknowledge “generous” federal unemployment benefits likely contributed “significantly” to recent labor shortages, the Goldman analysts expect cutting off the benefits last month will only boost hiring by about 1.3 million jobs through the end of the year—less than 20% of the estimated 7.5 million people who ultimately lost benefits last month.
Expectations for ongoing worker shortages “reflect a perfect storm of factors” that have disincentivized people from looking for work, all while labor demand—as measured by job openings—has surged to an all-time high, the investment bank wrote in its note to clients.
Chief among factors, more than 3 million people still say the risk of getting or spreading Covid-19 is their main reason for not working, according to the latest Census Household Pulse Survey—down from a high of 6.5 million in August (thanks to increasing vaccination rates) but still a large portion of the 8 million unemployed people.
Also feeding labor shortages, the number of visas issued to immigrants and temporary workers “collapsed” during the pandemic, partially reflecting restrictions on entry into the U.S. that have only recently been relaxed, Goldman notes, forecasting the drop in visas has reduced available workers by about 700,000.
In addition, a staggering 1.5 million workers have retired early during the pandemic, on top of another 900,000 who naturally aged out of the workforce.
Although they expect labor-market shortages to ease going forward, the analysts expect that a million people will still be out of the labor force by the end of next year.
“While generous unemployment benefits have contributed to the labor shortages, reports of labor shortages are widespread across developed economies, suggesting that common global factors—for example, elevated health risk—also play significant roles,” the Goldman team led by Jantzius wrote Monday.
The federal government’s pandemic-era unemployment relief expired on September 5, marking an end to the long-politicized benefits that states started phasing out in May. Many GOP lawmakers argued the payments disincentivized workers to look for jobs and were leading to widespread labor shortages, but not all experts agreed. In June, JPMorgan economists said the early end to unemployment insurance seemed “tied to politics, and not economics” because many of the states announcing the early reduction (all but one of which were led by Republicans) didn’t show signs of a tight labor market or strong earnings growth—two factors used to justify ending the enhanced benefits.
Worker shortages have slowed the labor market recovery and in some cases led to production delays and price hikes, with about 80% of small businesses in a recent Goldman survey reporting that hiring difficulties are hurting their profits. Meanwhile, a number of data points in recent weeks have pointed to ongoing struggles around employment. In another sign the end to pandemic-era jobless benefits hasn’t done much to boost the labor market, new unemployment claims have been higher than expected in each of the past three weeks. The labor market posted its worst monthly showing since January last month, adding back only 235,000 jobs despite forecasts calling for nearly a million additions.
What To Watch For
The labor market’s next big data point comes out Friday, when the Bureau of Labor Statistics is slated to report the unemployment rate for September. The unemployment rate clocked in at about 5.2% of the labor market in August, according to the Labor Department’s monthly jobs report, down from 5.4% in July and significantly higher than prepandemic levels below 4%.