The economy has not bounced back to prepandemic employment levels, even as G.D.P. effectively has.
Some blame unemployment benefits for keeping workers at home, while others claim that it is the virus still holding back customers and therefore employers from adding jobs. Yet there is a third factor that is likely the labor market’s primary challenge: We are undergoing an enormous reallocation of people and jobs. People need time to find their new position in the labor market.
The early hope among policymakers and economists was that the pandemic aid offered to businesses and families would mean that once we recovered from the pandemic, workers would simply return to their old jobs, sending millions back to work each month and closing the employment gap quickly.
The problem is that old jobs are long gone for the vast majority of those who remain unemployed.
That is from Betsey Stevenson (NYT), and I am not taking issue with her arguments. Note that if you look about the debate over 2021 more broadly, pretty much everyone agrees there might be too much AD rather than too little. And yet these matching problems are still around? Hmm….once you are in a mess, supply-side labor adjustment problems just cannot be fixed so easily by nominal demand and nominal demand only. See my earlier recent post on this point, namely that business cycle recoveries tend to look the same on the labor side for supply-side reasons. During recoveries a lot of people just don’t want to go back to work or even look for a job! That was true in the last recession as well, read this paper, or this research. People hate the idea if you call them ZMP, but it’s right there in the numbers…how can someone be MP > 0 if they won’t even show up for an interview?
You might notice, by the way, I am not a huge fan of the NAIRU concept and you won’t see me cite it very often (occasionally it is useful shorthand for a less controversial concept.) The following notion, however, is well-defined: “What the rate of unemployment would be if there were no major negative shocks for a decade and people had seven, eight, or even more years to search for the right job match.” Yes that is indeed a well-defined number, and that number is pretty low. I’m just not sure that is very “natural.” What would John Gray say? The Marquis de Sade?