## Tight Jobs Market Is a Boon for Workers But Could Add To Inflation Risks

_IMF Blog, March 31, 2022_

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## Bibliographic details
- Authors: Romain Duval, Myrto Oikonomou, Marina M Tavares
- Published: March 31, 2022

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### Overview
- Labor shortages have pushed up wage growth, benefitting low-wage workers but adding to inflation risks.
- By late 2021, there were "50 percent to 80 percent more unfilled jobs in Australia, Canada, the United Kingdom and the United States than there were prior to the pandemic."
- Open vacancies were at or above their 2019 levels in other advanced economies and have risen steadily across all sectors, including contact-intensive sectors such as hospitality and transportation.
- Increases in vacancies have been largest for low-skilled jobs.
- The sharp rise in unfilled vacancies partly reflects a strong economic recovery in advanced economies until the start of the Ukraine crisis, with firms recruiting en masse to cope with booming demand.
- A new IMF Study provides additional analysis of the causes and implications of persistent vacancies.

### Why vacancies aren’t being filled
- Health concerns related to the pandemic have kept some older and lower-skilled workers previously employed in contact-intensive industries outside of the labor force, shrinking the pool of available job seekers.
- In the median advanced country:
  - "low-skilled workers account for over two-thirds of the gap between aggregate employment and its pre-pandemic trend."
  - "Older workers, as a group, contribute about one-third of this employment gap."
- In some countries (for example, Canada and the United Kingdom), the decline in immigration has amplified labor shortages among low-skill jobs.
- COVID-19 may have changed workers’ job preferences:
  - In the United States, resignations have risen beyond their historical relationship with vacancies, suggesting workers search for better working conditions.
  - In the United Kingdom, resignations have risen the most for low-wage jobs that are contact-intensive, physically strenuous or offer little flexibility (transport and storage; wholesale and retail trade; hotels and restaurants).

### Impact on wage growth and inflation
- Labor market tightness (measured by the ratio of vacancies to the number of unemployed workers) has pushed up wage growth across the board.
- The impact on wage growth in low-wage sectors has been over twice as large, at least in the United States and United Kingdom, because:
  - "wages are over twice as responsive to tightness in low-pay industries," and
  - those industries have seen larger increases in tightness than other industries.
- Estimated effects:
  - "the annual growth rate of nominal wages in low-pay industries increased by 4 to 6 percentage points between mid-2020 and late 2021 because of rising labor market tightness," helping reduce wage inequality in some countries.
  - "The overall impact of increased tightness on wage inflation has been more moderate so far, at least 1.5 percentage points in both countries."
- The modest aggregate effect reflects the small overall share of low-pay industries (and jobs) in total labor costs.
- If labor market tightness persists, it is likely to keep overall nominal wage growth strong going forward.
- Inflation risk pathway:
  - Impact on inflation is expected to be manageable unless workers demand higher compensation in response to recent price hikes and/or inflation expectations rise.
  - Central banks should continue to signal their strong commitment to avoid any price-wage spirals.

### Policies to bring workers back and ease pressures
- Public-health measures:
  - Curbing COVID-19 outbreaks would enable older and low-wage workers to reenter the labor force, easing labor market pressures and inflation risks.
  - Keeping schools and daycares open is important for women with young children to fully return to work.
- Active labor market policies:
  - Well-designed programs could speed up job matching, including short-term training to build skills required for new fast-growing digital-intensive occupations (technology and e-commerce) or traditional jobs with acute shortages (truck drivers; care workers).
- Labor regulations and work arrangements:
  - To accommodate shifting worker preferences, labor laws and regulations need to facilitate telework.
- Migration policy:
  - Where a decline in immigration amplifies labor shortages, resumption of immigration could further "grease the wheels" of the labor market.

### Conclusion / Key takeaways
- Tighter labor markets in several advanced economies have increased pay, especially for low-wage workers, with a manageable impact on price inflation to date (the surge in inflation has predominantly been driven by other factors).
- Some workers who left during the pandemic have yet to return; others have lingering concerns or new expectations that restrict labor supply.
- By doing more to help these workers reenter the labor force, governments can make the labor market recovery more inclusive while curbing inflation risks.

*Romain Duval, Myrto Oikonomou, Marina M. Tavares; March 31, 2022.*

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## References

- [https://www.imf.org/wp-content/uploads/2022/03/Chart-1-Labor-Makets-Blog.jpg](https://www.imf.org/wp-content/uploads/2022/03/Chart-1-Labor-Makets-Blog.jpg)
- [new IMF Study](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2022/03/30/Labor-Market-Tightness-in-Advanced-Economies-515270)
- [previous blog](https://blogs.imf.org/2022/01/19/why-jobs-are-plentiful-while-workers-are-scarce/)
- [https://www.imf.org/wp-content/uploads/2022/03/Chart-2-Labor-Markets-Blog.jpg](https://www.imf.org/wp-content/uploads/2022/03/Chart-2-Labor-Markets-Blog.jpg)

_Source: https://www.imf.org/en/blogs/articles/2022/03/31/tight-jobs-market-is-a-boon-for-workers-but-could-add-to-inflation-risks_