As Economic Growth Surges, Hiring May Not Keep Pace

April 26, 2021

As pent-up consumers demand drives economic growth in the coming months, employers may have trouble hiring enough workers to keep up. The Wall Street Journal is reporting that economists expect economic activity to pick up faster than payrolls, which may lead to bottlenecks and wage pressure in the labor market.

The WSJ notes that something similar happened last year. As locked down Americans ordered more furniture, exercise equipment, and electronics, manufacturers experienced labor shortages. This year, service jobs are likely to see a similar shortfall.

Economists surveyed by the WSJ expect GDP growth of 6.4% this year, which would put economic output nearly 4% above its pre-pandemic level. At the same time, these economists expect employers will add 7.1 million jobs by the end of 2021. This would leave employment 1.6% lower than its pre-pandemic level, meaning that we will see more output with fewer workers.

The WSJ notes two major reasons that hiring will lag behind growth, First, employers will be hesitant to hire workers until they are convinced the pickup in demand will be lasting. Second, millions of workers left the workforce altogether during the pandemic, and they are not likely to return to work immediately.

There is concern that this will create upward pressure on wages, which could also drive inflationary pressure. Another potential consequence is that consumers will be less likely to engage with businesses that cannot keep up with demand, stunting the economic recovery.

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