The influx of workers has made the Fed’s work less painful. Can you continue?

Hotels in New York’s Adirondacks are having an easier time staffing this summer, in part because immigrants are entering the country in greater numbers and a steady supply of seasonal help that was hard to come by right after the pandemic.

It makes employees less stressed for companies like Weekender, a brand of seven country hotels in and around the area. The company managed to get six exchange workers this summer, up from four last year. And similar stories are spreading across the country, providing good news for the Federal Reserve.

Fed officials are trying to fight down inflation by raising interest rates and slowing the economy. A large part of the task hinges on rebalancing the labor market, for which 23 consecutive months The number of jobs available was significantly more than the number of workers to fill them. Officials worry that if competition for workers remains fierce and wages continue to rise as quickly as they have, it will be difficult to completely eliminate rapid price increases. Companies that pay wages to attract workers will try to charge more to cover the bills for the climbing work.

The Fed could help calm the labor market by lowering demand, but the central bank is getting more help than expected from an oversupply of workers. In recent months, workers have crowded into the job market in numbers that have surprised policymakers and many economists.

This development is due in part to an immigration rebound that has occurred as the United States eased restrictions related to the pandemic, cleared backlogs, and enacted more lenient policies. The labor supply also received a boost as some demographic groups — including women in their early years of work — returned to the labor market in greater numbers than expected, driving their employment rates to record levels.

This flow has made the Fed’s job somewhat less painful. Employment has been able to advance rapidly at a steady clip without further overheating of the labor market due to Workers became available To replace those who are being cut. Unemployment has remained steady around it 3.5 percent, Some data even suggests that hiring has become less stressful. Wage growth is starting to slow, for example, and so is workers He no longer pulls Such long hours.

“Monetary policy is part of the story to move demand toward supply, but any help we can get from increasing supply is good news,” said John C. Williams, President of the Federal Reserve Bank of New York. in an interview With the Financial Times this month.

Employers have added about 280,000 workers a month so far in 2023. Job gains have gradually slowed, but that’s about three times the speed that Jerome H. Powell, chairman of the Federal Reserve, said. Suggest that he expects it to be necessary To provide employment opportunities to a steadily growing population.

The expansion in the labor supply allowed the Federal Reserve to accept faster-than-expected hiring without squeezing the brakes on the economy more aggressively. Fed officials, who raised interest rates above 5 percent from nearly zero in March 2022, have slowly pushed them higher and higher over recent months. Policymakers are expected to raise interest rates by a quarter of a point at their meeting this week, to a range of 5.25 to 5.5 percent. Many investors bet The decision, which will be announced on Wednesday, could be The Fed’s last move for now.

What the Fed does in the remainder of 2023 will depend on economic data. Is inflation that slowed dramatically from its peak In June 2022, will you continue to moderate? Will job gains and wage growth continue to decline? If the economy maintains a lot of momentum, officials may feel the need to take another step this year. If cooled, they may feel comfortable stopping the rate increase. Either way, policymakers are indicating that rates probably need to remain high for some time.

When it comes to the labor market portion of this puzzle, key officials have indicated that they believe the next phase of restoring balance may be more difficult. Policymakers have welcomed the newfound labor supply in recent months, but some doubt this trend can continue. Mr Williams suggested that immigration could remain strong, but that it might be difficult for participation – the share of those who are working or looking – to rise much more.

“I don’t think there’s a lot of room for that to continue to be a big driver of supply-demand rebalancing,” Williams said in his July interview — explaining that the Fed will need to continue using policy to slow labor demand in order to bring down inflation.

Some economists and labor groups think that officials such as Mr Williams are very sad about the prospects for continued improvement in the labor supply: immigration numbers are still rising, and flexible and remote work arrangements may mean that people who could not work in ages past can.

“The ability of the labor supply side to continue to improve, I think the Fed may have undersold it,” said Skanda Amarnath, executive director at Employ America, a research and advocacy group focused on the labor market. “I think they’re probably underselling it yet.”

Worker shortages began to emerge in late 2020, after massive layoffs and immigration restrictions reduced the size of the labor pool. the civilian workforce – which included people who are working or looking for work – fell by eight million people in early 2020.

But the supply of workers has since rebounded by about 10.6 million. This rebound is due in part to a rebound in the foreign-born workforce, which accounts for nearly one in every three potential workers added since Epidemic low pointbased on data from the Ministry of Labor.

Legal immigration is gaining momentum as the handling of backlogs is clear and the policies of the Biden administration allow More refugees She entered the country, said Julia Gelatt, associate director of the US Immigration Policy Program at the Migration Policy Institute. Undocumented immigration was also notable, with increased political unrest abroad and a relatively strong and stable US economy.

“We are seeing a huge increase in migration,” Gilat said. “Certainly a rebound to pre-pandemic normality before Trump.”

The recovery in documented immigration is evident in the visa data. About 1.7 million workers could enter the country this year if current trends continue, about 950,000 more than the low point during the pandemic, Courtney Schubert, an economist with MacroPolicy Perspectives, found in an analysis.

In fact, immigration may be stronger than it was before the pandemic, when former President Donald J. Trump’s policies reduced the number of foreigners entering the United States. It found that the number of potential workers coming into the country on visas in May alone was about 50,000 more than usual from 2017 to 2019.

Immigration is not the only potential source of new labor supply. Employment rates rose across the board, with a share of disabled people And Women between the ages of 25 and 54 who are working to reach new heights, perhaps bolstered by the shift to more remote work and more flexible hours that has occurred amid the pandemic.

“It gave us a supply of workers that we didn’t have before, because workplaces are more flexible,” said Diane Swonk, chief economist at KPMG.

The end result has been beneficial to companies like Weekender Hotels in the Adirondacks. The company’s six exchange-visa workers are spread across three of its seven properties, said Keir Weimer, the company’s founder, and are a small but significant part of the 85-strong workforce.

The company has also had an easier time competing for employees overall after a few years of adjusting. Mr. Weimer estimated that wages had risen 10 to 15 percent over the past 15 months, but said wage growth was beginning to slow.

“We’re now beginning to learn more about career advancement and linking pay to performance and promotion, rather than just market,” he said. “There is definitely less wage pressure than there was a year ago.”

Of course, the new labor supply can also boost demand: The more people work, the more money they earn and spend, said Jason Furman, a Harvard economist, in the face of any inflationary burden. This does not mean that improving the labor supply is not beneficial.

“It’s a way to increase the pace of job growth without inflationary pressures,” he said.

But even as employers and economists slowly embrace the natural labor market, the supply of workers faces a significant headwind: an aging population. America is aging as a large generation of baby boomers move into their retirement years, and the elderly are less likely to work.

That’s why some Fed officials suspect that an oversupply of labor can lead to too much of a heavy burden when it comes to rebalancing the labor market — a suspicion shared by some economists.

“I think we still have a short supply,” said Yelena Shulyateva, chief economist at BNP Paribas.