US labor market little affected by pandemic, researchers say

US labor market little affected by pandemic, researchers say

BOSTON, Nov 19 (Reuters) – Despite all the tumult and disruption of the coronavirus pandemic, U.S. labor markets have come out the other side not far from strong pre-crisis conditions, a paper presented at a conference a Boston Fed research conference said.

Almost all of the hit the U.S. job market took in 2020 when COVID-19 hit was related to temporary layoffs that were quickly reversed, according to the document presented on Saturday.

Adjusted for these temporary changes, “the labor market has remained surprisingly tight throughout the crisis, despite dramatic job losses” and by the spring of this year it had recovered and returned to extremely tight conditions .

“I think if we were going to see large-scale changes, we would have seen them at this point,” said University of Rochester economics professor Lisa Kahn, who was one of the co-authors.

The US unemployment rate has been on a virtual roller coaster in 2020. From a reading of 3.5% in February of the same year, it soared to 14.7% in April of the same year, before undergoing a recovery much faster than expected which resulted in very low unemployment rates. — it was 3.7% last month — and very robust levels of job creation.

Fears that the pandemic would cause deep and lasting damage to the economy generated a historically aggressive stimulus campaign by the government and the Federal Reserve, as elected officials and central bankers were aware that the weaker policy response to the Great Recession more than a decade ago led to a slow recovery in the economy.

This policy response is now seen as a key driver of the massive surge in inflation that followed the most acute phase of the pandemic. Faced with the highest levels of inflation in forty years, the Fed is aggressively raising its short-term rate target to help reduce price pressures. As part of this effort, Fed officials acknowledge that their actions could push the economy into recession and will most likely cause the unemployment rate to rise.

“By raising rates, we aim to slow the economy and better balance labor demand with supply. The intention is not for a significant slowdown,” Boston Fed leader Susan Collins said Friday in remarks that opened the conference at her bank. Collins was optimistic that there is a path to price stability that involves only a modest increase in the unemployment rate.

Lawrence Summers, a Harvard University professor and former central bank leadership candidate, renewed his criticism of the Fed when discussing the document on Saturday and said the idea that the labor market was not that temporarily upset by the pandemic was correct.

He reiterated that the Fed and the broader government made a mistake in providing massive levels of stimulus and that is why inflation is so high now.

Given what the government has done, “it’s hard to imagine how this could have led to anything other than a substantially inflationary situation,” Summers said.

Reporting by Michael S. Derby; Editing by Josie Kao

Our standards: The Thomson Reuters Trust Principles.

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