“Are you employed, sir?”
Businesses and households have different perceptions of the current job market. The Bureau of Labor and Statistic’s establishment data suggests that plenty of jobs are available. The Bureau’s household survey data, however, shows persistently high rates of unemployment. For fans of the movie The Big Lebowski, it’s reminiscent of the Big Lebowski lecturing “The Dude” to “get a job.”
Source: Bureau of Labor and Statistics: Job Openings and Labor Turnover Survey and Current Population Survey
Some economists theorize that enhanced unemployment benefits incentivize people to stay home rather than find a new job. Nevertheless, Indeed.com observed only a brief, modest increase in search activity within the 25 states that opted out of the federal unemployment benefits program early.
Data suggests that some job seekers are happy to return to work, but only if they are permitted to work from home. LinkedIn reported that despite remote positions representing less than 10% of all job postings (almost 5x the number of pre-pandemic listings), work-from-home jobs received nearly 25% of the submitted applications. Those employers willing to cater to pajama-bottomed workers are winning the war for skilled job seekers. Even “The Dude” may be willing to consider getting a job.
Brick-and-mortar workplaces may need to be patient. Some workers, particularly those with face-to-face interactions, may be hesitant to return until their local vaccination rates rise. Approximately 67% of U.S. adults have been received at least one dose of the vaccine, but many states remain well below the national average as the pace of vaccinations has slowed. Additionally, many districts finished their school year remotely, and parents may be reluctant to return to work until their childrens’ schools commit to reopening in the fall. The good news is that both of these factors (particularly school reopenings) should subside later this year.
Returning workers, however, may not have the right skills for the jobs that await them. Despite a nationwide one-for-one jobseeker–to–job opening ratio, the ratio by industry tells a different story. In April, for example, there were far more job seekers in the construction industry than there were jobs available. Health care and social assistance jobs, on the other hand, far outnumbered the supply of qualified applicants. While some construction workers could transition to healthcare, it may require retraining.
Source: Bureau of Labor and Statistics: Job Openings and Labor Turnover Survey and Current Population Survey
A recent McKinsey report suggests that a transitioning workforce may be a longer-term headwind for the labor market. COVID-19 accelerated existing trends in automation and e-commerce. It also challenged many firms’ views on remote work and the importance of business travel. Pre-pandemic, McKinsey expected 7.9% of the labor force to transition occupations by 2030. The consultancy now estimates that more than 10% will need a career change, affecting more than 17 million workers.
Finally, there is another trend afoot that could undermine employment growth. In a January 2021 survey, Microsoft’s Work Trend Index found that 41% of workers were considering leaving their current employers. According to the Labor Department, more than 4 million people quit their jobs in April alone. Several surveys have suggested that the number of resignations may pick up as employers require staff to return to the office. The pending Great Resignation poses additional risks to employers who lose their most productive employees while struggling to onboard new ones.
From a broader perspective, the economy will operate below its capacity if we continue to see a high level of unemployed or discouraged workers. For investors anticipating higher interest rates, labor underutilization is problematic while the Fed remains committed to sacrificing modestly higher inflation for full employment. While the Fed has now retired its “not thinking about thinking about” mantra regarding tightening monetary conditions, these labor dynamics may provide an upper limit to how aggressively it can move.
For investors, we believe that these dynamics continue to support a modest overweight toward risk assets, like equities or high yield bonds. Improving economic conditions and limits to a significant change in Fed policy could provide a Goldilocks environment with reasonable returns from both cyclical and non-cyclical businesses. However, for talent-dependent businesses, attracting, training, and retaining, and engaging workers may prove to be a better determinant of a company’s performance than its sector’s growth prospects. That may require being a little less “Big Lebowski” and a little more “The Dude.”