• Millions of people who left the workforce last year have no plans to return to work, shopping or dining out.
  • Women, those without a college degree, and people in low-paying sectors are the least likely to return.
  • A labor shortage will likely put more pressure on wages and prices, even if the Fed raises rates.

Millions of Americans who left the workforce last year plan to stay away indefinitely, signaling a ‘long social distancing’ trend that is likely to affect the White House and


Federal Reserve

Politics.

An estimated three million people who left the workforce last year have no plans to return to in-person work, shopping or dining out.

Their position is in part due to lingering fears around the pandemic, according to research by Nicholas Bloom of Stanford University, José María Barrero of the Instituto Tecnológico Autónomo de México and Steven J. Davis of the University of Chicago.

Dropouts were more likely to be women, people without college degrees and people working in low-paying sectors, the researchers said. A quarter of those unwilling to resume pre-pandemic activities cited pandemic fears as a primary or secondary factor.

The study, which surveyed the opinions of 5,000 people over 12 months, consistently found that at least 10% of respondents had no intention of returning to the workforce, particularly if they were to do so in person or other pre-pandemic activities.

“Our evidence is that the workforce is not going to magically rebound,” Bloom told the Wall Street Journal.

He added: “We still don’t see any change in these ‘long social distancing’ numbers, which suggests that this decline in labor force participation could be quite long-lasting.”

The suggestion that millions of people pull out of the in-person economy as COVID-19 restrictions ease could put more pressure on the labor market and accelerate US plans to suppress demand.

Inflation hit a four-decade high of 8.5% in March. Although some inflationary pressures are easing, workers could demand a raise to meet rising costs, potentially invoking a wage-price spiral that could make steep price increases endemic.

The Federal Reserve’s Monetary Committee has announced six rate hikes this year in addition to the two already announced, prompted by fears of an overheating economy.

The creation of 431,000 more jobs last month has given rise to optimism that hiring will pick up, after unemployment in the United States peaked at more than 23 million during the pandemic. It was most recently close to pre-pandemic levels below 6 million.

But these results suggest that the labor market will remain tight, putting upward pressure on wages and prices even if interest rates rise. The team behind the study estimates that there is still a shortfall of about 3.5 million workers in the United States, that is, the number of people who would have made up the labor force if the economy continued to grow at its pre-pandemic pace.

Joe Biden’s COVID-19 preparedness plan, released last month, said the US president was working with lawmakers to provide paid time off to those who had to take time off after contracting the virus. The objective is to ensure the economic security of workers currently in the labor market.