Sunday, 22 May, 2022

Employment gap may weigh on growth, spur inflation in US, UK: IMF

NEW YORK: About two years since the coronavirus pandemic upended labour markets globally, job openings are plentiful in many advanced economies, yet workers have not fully returned, according to the International Monetary Fund.

This gap, in which the employment rate is below the pre-Covid levels, is playing out in the US and Britain, the Washington-based lender said on Wednesday, report agencies.

In the US and UK, the recent labour market puzzle can be partly explained by a mismatch, the pandemic’s effect on women [in the US] and older workers leaving the workforce, it said.

“If the broader trend of plentiful jobs and not enough workers continues, it can have major implications for growth, inequality and inflation,” said Carlo Pizzinelli, co-author of the white paper and an economist in the fund’s regional studies division.

“A continued sluggish employment recovery amid sustained labour demand could constrain economic growth while fuelling wage increases.”

Global unemployment is expected to remain above pre-coronavirus levels until at least 2023 as the pandemic continues to weigh heavily on global labour markets, according to a report by the International Labour Organisation this week.

The shortfall in working hours was equal to 52 million full-time jobs this year, the report said. The previous full-year estimate in May 2021 projected a deficit equal to 26 million full-time jobs.

Generous income support programmes launched by governments during the pandemic allowed workers to be picky, slowing job applications, acceptances and, ultimately, the employment recovery, the IMF said.

But preliminary evidence, including that from the recent phasing out of the US federal unemployment insurance supplement, suggests the early removal of Covid-related unemployment benefits had only a modest and temporary effect on getting people back to work, said Ippei Shibata, an economist in the fund’s research department.

There has also been an increase in the mismatch between the industries and occupations in which the jobless are searching, and those with abundant vacancies, according to the lender.

“However, the employment loss due to mismatch during the crisis has been modest and smaller than during the global financial crisis,” Mr Shibata said.

“We estimate that, as of early last autumn, mismatch explains only about 18 per cent and 11 per cent of the outstanding employment gap versus pre-Covid levels in the US and the UK, respectively.”