The tight labor market has been partly to blame for pushing inflation to an almost-40 year high, but the dynamics driving labor market woes aren't the same across all industries, Richmond Fed President Tom Barkin said in prepared speech.
He categorized the labor market into three buckets — low-paying personal services, in-demand skilled trades, and remote-friendly professionals.
The personal services segment, hit the worst by the pandemic, still hasn't fully recovered. Revenue for many of these businesses are still lagging prepandemic levels, he said. The issue appears to be labor supply. "Workers have left the segment — perhaps because it now seems less stable, perhaps because of concern about COVID-19, perhaps because of working conditions (including the need to wear masks), or perhaps because of child care responsibilities," Barkin said.
As a result, many workers have shifted to industries that increased during the pandemic, such as transportation or warehousing. In this segment, employers will need to think about working conditions "that could attract people from the sidelines.
In the skilled trades, such as nursing, trucking and manufacturing, the labor supply isn't as flexible, as many of the jobs require certification or licenses. In this segment, labor supply hasn't been able to keep up with the increased demand during the pandemic. It's a "pipeline problem, and it may be getting worse." He suggested that "employers and localities" need to take ownership of their education, training and credentialing pipelines.
The remote-friendly professions had less trauma that in other downturns. "Layoffs were rarer in the pandemic. Demand stayed robust. Work got done," Barkin said. And while the labor market was tight during the pandemic, it didn't reach peak levels of the 1990s. He pointed out that the most elevated quits rates for information and financial activities during the pandemic were still more than half a percentage point below their record high rates in 2001.
The narrative is still playing out in the remote-friendly professional segment as employers decide upon the business model that optimizes business performance and talent retention. As that happens, "it is likely a number of workers will find themselves mismatched against their employer’s intended operating model and emboldened to explore alternatives by the strong labor market," Barkin said.
The degree of success in balancing labor supply and demand will help to determine whether inflationary pressures subside.
In December, the quits rate eased to 2.9% from 3% in November, while job openings increased.
On Tuesday, Atlanta Fed President Raphael Bostic said the U.S. will be hard-pressed to keep inflation below 3% this year.