Hours: Monday - Friday 8:00 am - 5:00 pm


Labor force dynamics: 60,000 jobs per month are needed to keep the jobless rate near 4.4%

REAL ECONOMY BLOG | August 03, 2022

Authored by RSM US LLP

Long-run changes in the labor force have slowed its growth and are likely to result in a shortage of workers even if the economy falls into recession.

Between 2008 and 2020, the labor force grew at an average rate of 0.06%. Assuming that does not slow further—it very well could because of demographic dynamics and a lack of immigration—the number of jobs necessary to stabilize the unemployment rate at or near the Congressional Budget Office’s estimate of full employment of 4.4% will be roughly 95,000 per month in 2023 and then slowing to 25,000 per month in 2024.

Over the next two years, the economy will need to add only about 60,000 jobs per month to keep the economy near the CBO’s estimate of full employment.

In our analysis, we are assuming that the number of unemployed people will increase by only 20% over 18 months once the recession sets in.

This is a modest trough-to-peak increase in the number of out-of-work people relative to the 50% increases during the recessions of 1980s and 90s. But it is perhaps more consistent with the current demand for labor and the limited supply of willing workers.

We then expect the number of unemployed workers to decrease by 20% over the next two years as the recovery takes hold, which is also a rough estimate based on previous recoveries.

Policy implications

The policy implications of this new dynamic in the labor force are significant. First, it will almost certainly require a policy rate well above the Federal Reserve’s current implied rate of 2.25% to 2.5% that the central bank assumes is neutral.

We are certain that policymakers, investors and the commercial community have not priced this in and are only at the early stages in their consideration of such a significant potential change in the labor force.

Second, sooner or later the American commercial sector is going to have to start a conversation around the need to import workers through the immigration channel.

Because there are no near-term solutions if more people do not re-enter the labor force or no rational compromise on immigration can be reached, the labor shortage will accelerate the turn to technology and advanced forms of automation as the primary solutions to address those labor dynamics.

Let's Talk!

Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Joseph Brusuelas and originally appeared on 2022-08-03.
2022 RSM US LLP. All rights reserved.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how Condley and Company can assist you, please call (325) 677-6251.

Share This