BOSTON, Nov 19 (Reuters) – For all the tumult and disruption from the coronavirus pandemic, U.S. labor markets have come out on the other side not far from the strong conditions that prevailed before the crisis, a paper presented at a Boston Fed research conference said .
Almost all of the hit to the U.S. labor market in 2020 as COVID-19 took hold was tied to temporary layoffs that were quickly rolled back, the paper presented Saturday said.
Adjusted for this temporary shift, “the labor market remained surprisingly tight in the crisis, despite the dramatic losses of jobs” and had recovered by the spring of this year and returned to extremely tight conditions.
“I think if we were going to see large-scale changes, we would have seen them by now,” said Lisa Kahn, an economics professor at the University of Rochester, who was one of the co-authors.
The US unemployment rate has been a virtual roller coaster ride in 2020. From a 3.5% reading in February of that year, it rose to 14.7% in April of that year, before undergoing a much faster-than-expected recovery that led to very low unemployment rates. – it stood at 3.7% last month – and very robust levels of jobs.
Fears that the pandemic would cause deep and lasting damage to the economy generated a historically aggressive campaign of stimulus by the government and the Federal Reserve, as elected officials and central bankers realized that the weaker policy response to the Great Recession a decade ago led to a slow recovery for the economy.
This policy response is now seen as a key driver in the massive surge in inflation following the acute phase of the pandemic. Faced with the highest inflation levels in forty years, the Fed is aggressively raising its short-term rate target to reduce price pressures. As part of that effort, Fed officials recognize that their actions could push the economy into recession and will very likely drive up the unemployment rate.
“By raising rates, we aim to slow the economy and bring labor demand into better balance with supply. The intent is not a significant drop,” said Boston Fed leader Susan Collins on Friday in remarks that the held a conference at their bank. Collins was optimistic that there is a path to price stability that includes only a modest increase in the unemployment rate.
Lawrence Summers, a Harvard University professor and one-time candidate to lead the central bank, renewed his criticism of the Fed while discussing the paper on Saturday, saying the idea that the labor market will only temporarily rise from the pandemic is correct.
He reiterated that the Fed and the broader government were wrong to provide massive levels of stimulus and that is why inflation is so high right now.
Given what the government did, “it’s hard to imagine how that would have led to anything other than a significant inflationary situation,” Summers said.
Report by Michael S. Derby; Editing by Josie Kao
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