This research was published on June 8, 2021

Reports of “labor shortages” have grown as the US economy continues its strong rebound, giving rise to both microeconomic concerns (hiring) and macroeconomic worries (inflation). However, record high job openings look more like bottlenecks to us than “shortages.”

Both shortages and bottlenecks can arise when labor demand is too high, supply too low, or both — where they differ is their permanence. On the demand side we use a “hiring-firing” matrix, updated with today’s data release, to illustrate the state of labor demand across 28 sectors, very little of which has the hallmarks of a shortage. We also point to the strong correlation between degree of firing and intensity of (re-)hiring, the difference in speed between these two processes, and the reluctance of firms to pay higher wages to close job openings. Contrary to prominent headlines, the willingness to pay up remains below pre-Covid levels.

On the labor supply side, we disaggregate the participation rate by age groups to show that young workers and old workers are returning strongly, undermining popular narratives for these groups (“stimulus checks too generous” and “virus fears,” respectively). However, the middle aged have not returned meaningfully. There are good reasons for that, centered on childcare uncertainties, but should their participation continue to lag after the summer that would be a sign that current bottlenecks are turning into shortages.

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