💼Back To The Basics. Why Is Unemployment High & An Overflow of Jobs?

This is by far the strangest recovery America has ever witnessed and we are in the trenches of it.

Inflation is at it’s highest point in 11 years, wages to tuition are rising, businesses are scrambling with not enough staff, employees are missing and Americans are spending like there’s no tomorrow.

Can we call this a dangerous yet remarkable recovery?

While the hardest hit industries such as airlines, hospitality, leisure and transportation have made an epic comeback and Q2 results are expected to blow out analyst expectations, concerns regarding inflation, higher-interest rates, supply-chain constraints in computer chips and gas and most predominantly the unemployment rate, a leading indictor for the Fed to signal tapering off stimulus of cheap borrowing rates and pull back on QE (quantitive easing — the way the Fed borrows bonds to spur more money into the economy) are rising steadily.

In its latest meetings, Fed Chairman, Jerome Powell stated inflation isn’t a concern and is instead seen as transitory despite affecting markets and consumer spending. The Fed is keeping up with their expected date of 2023 to lessen interest rates once inflation averages around 2% while investors believe it will be much sooner due to the unexpected growth and miraculous rebound from small businesses to crushed industries that barely stayed afloat even with gov’t stimulus during the pandemic.

The Fed’s definition of a full economic is when every American who wants a job can get a job but that will certainly take some time and now with unusually high unemployment rates, that may never been possible in the foreseeable future.

Open or Closed

Job openings are at record highs and with more than 9 million Americans who wanted jobs in May, couldn’t or didn’t get them despite being open.

Back to the basics. How is this actually happening since we didn’t learn this in school.

Companies are open, people are refusing but at the same time, searching? Huh?

Unlike recoveries in the past from the ’08 Financial Crisis and Great Recession after WWII, unemployment slowly waned and got back to the same rate during pre-recession. When unemployment is high that usually occurs at the crux of the economic meltdown, typically entailing companies become picky of who they want to keep or not due to the inflationary environment.

Today, this is by far the slowest and most complicated recovery in terms of jobs because they’ve have been supplied/created at record pace and need to be filled quick to keep up with the post-pandemic influx of demand. Thankfully teens won’t be bored this summer and are the highest demographic employed. Read here how and why.

The Great Disconnect

As companies are offering incentives from free college tuition to juicy bonuses to spur hiring, wages are rising briskly even as the unemployment rate was 5.9% in June, well above the pre-pandemic rate of 3.5%.

This high jobless rate suggests an excess of labor supply.

Several factors have lead to this disconnect which include:

-Many workers moved once laid off during the pandemic and relocated to jobs that were available

-Geographic issue: The once unemployed created demand for local services once the vaccine rollout took effect in small towns and suburbs that weren’t equipped with the labor force had to meet demand

-Permamanet moves to less dense areas

-Mismatch of jobs — acceleration of automation and digitalization driving increase in skills for highly-skilled workers leaving out those with basic skills and no training

-Changed their preferences to lower-cost living and or remote work, invested in themselves and acquired new skills

-Jobs that they used to have haven’t come back and are working somewhere else in the meantime

-Utilized relief/stimulus checks and now living off of Reddit and Robinhood

-Found remote jobs and bootstrapped + scaled their side hustle

A recent ZipRecruiter survey found 70% of job seekers who last worked in the leisure and hospitality industry say they are now looking for work in a different industry.

In addition, 55% of job applicants want remote jobs. An April survey of U.S. workers who lost jobs in the pandemic, conducted by the Federal Reserve Bank of Dallas, found that 30.9% didn’t want to return to their old jobs, up from 19.8% last July.

The Slow Mismatch

There’s a mismatch between the jobs open and the people who are looking for work. When people are forced to change, they change abruptly and rapidly. Americans may have realized the importance of passive income, multiple income sources and the power of the internet in terms of side-hustles, entrepreneurship and influencing.

Although this is a sounding alarm for the Fed to possibly slow down stimulus sooner rather than later, Jerome Powell is sticking to the view that these disruptions are temporary and low-interest rates remain warranted.

Come Back

There’s nothing traditional, expected or usual about anything that ever happens. The Spanish Flu in the early 20th century was not the same as Covid and the Great Recession post WWII in 1949 didn’t replicate the Housing Collapse in ’08. Although each of these circumstances were devastating in their own ways, history does repeat itself and since recessions hit every 8–10 years, there is something to gauge from the employment numbers each time and this time around, it’s completely lopsided and we cannot learn from the past, although we never seem to do anyway.

Historically as unemployment rises, job openings fall because employers have an abundance of workers from which to choose from. Coupled with minimum wage increases, this should be more common.

Falling unemployment (rising employment) = large number of openings which is the case but they aren’t filled. Unemployment and job opening are both elevated entailing people have made transitions in their career and couldn’t wait any longer.

So what’s in it for you? 

The covid pandemic affected everyone, everywhere, rich and poor but what changes did you adopt and is it better for the long-term?

As a personal finance guru, I’m curious, what transition have you made during the pandemic?

Were you fortunate enough to stay put in your job, transition to WFH, spend more and maybe too much time with family and even receive a juicy bonus ontop of stellar returns in the market?

Did you get furloughed or laid off and end up leveraging your brand and now work for yourself doing better than ever?

Or did you transition to an entirely new field, move to a low-cost state and earning more than you did with the same job in a different city?

Let’s see how long this will last. At least now almost everyone can get a job if they want one.