Labor shortage, inflation pose political obstacles for Biden

Millions of Americans have yet to return to work after dropping out of the labor market amid the onset of the pandemic, posing serious political obstacles for President Biden as he rushes to cement his economic agenda. 

Though the U.S. economy has recovered more than three-fourths of the jobs lost to COVID-19, roughly 6 million Americans who want to be employed were not actively looking for work last month, according to the Labor Department’s September jobs report. Another 2.7 million Americans can be considered long-term unemployed — jobless and looking for work for at least 27 weeks, which often pushes their résumés to the bottom of managers’ piles. 

Economists expected labor force participation to jump up notably over the summer and early autumn as vaccination rates improved, federal jobless aid programs expired and schools reopened for full-time in-person learning. More than 10 million jobs remained unfilled in August, and the high demand for workers has pushed wages 0.6 percent higher since September. 

Even so, the emergence of the delta variant in late July, a month when the U.S. added more than 1 million jobs, upended that progress. The U.S. added just 366,000 jobs in August and 194,000 in September as the labor force participation rate also stalled out at 61.6 percent, 1.7 percent below its pre-pandemic level.

“The whole economy was set up for a huge fraction of our employment to be in services, and within two years we’ve had this massive shift that hasn’t unwound yet, said Claudia Sahm, senior fellow at the Jain Family Institute and former Federal Reserve research director.

“We have a very uneven movement back to normal and it’s taking some time to work it out.”

At the same time, consumers shifted their spending from the recovering services sector to already booming goods producers, but with far more money to spend than in earlier days of the pandemic. Retail sales rose 0.7 percent in September after jumping 0.8 percent in August, led by 5.7 percent increase in sales by retailers without physical locations.

Sahm, like other left-leaning economists and Biden administration officials, highlighted the sharp rise in wages, intense demand for workers and rising corporate earnings as a stark contrast to the sluggish recovery from the 2008 recession. Biden himself has also touted a steep decline in jobless claims and steady growth in retail sales as proof of progress under his watch.

“The signs are clear that, despite the global challenges caused by the delta variant, our economy is on the right track,” Biden said in a Friday statement, crediting his recent vaccine mandate push for some of the improvement.

And even some right-leaning economists agree that the quicker rebound from the pandemic-driven recession is far better for the economy than the languid recovery from 2008, even with higher inflation. 

“Frankly, I’m much happier having these sorts of problems than the really slow recovery of the 2010s,” said Alan Cole, former chief economist for Republicans on the Joint Economic Committee. “Even when we are complaining about slower months, the slow months are usually followed by faster months, and even the slow ones are faster than the pace of the 2010s.” 

But the uneven pace of the recovery, along with a stimulus-fueled return to pre-vaccination spending habits, has kept up pressure on inflation and overloaded supply lines as headline job growth stalls.  

“Elevated goods spending is just delaying the reallocation of the economy to where it needs to go,” said Adam Ozimek, chief economist at Upwork.

“Service-providing companies can expand employment to get back to their prior capacity levels,” he continued.

“Goods-providing companies are not really going to expand and invest because they understand that this is temporary. No one’s out there building lots of brand new bicycle factories because they think we’re in a new era of bicycle demand. They understand that this is pandemic related.” 

That dynamic has spurred backlash from both Republicans, who are eager to tie Biden to higher food costs and empty shelves ahead of the midterm elections, and some moderate Democrats, including Sen. Joe Manchin (W.Va.), who is essential to passing Biden’s proposed multitrillion-dollar social services plan. 

“Millions of jobs are open, supply chains are strained and unavoidable inflation taxes are draining workers’ hard-earned wages as the price of gasoline and groceries continues to climb,” Manchin said in a Friday statement responding to an op-ed from Sen. Bernie Sanders (I-Vt.).

“Congress should proceed with caution on any additional spending and I will not vote for a reckless expansion of government programs.” 

The president will need nearly every House Democrat and all 50 Democratic senators to pass his “Build Back Better” agenda through the budget reconciliation process, which only requires simple majorities in each chamber to approve legislation. 

Democrats are currently negotiating over how to pare back the package of health coverage expansion, child care support, free community college and greenhouse gas reduction provisions to meet the fiscal concerns of Manchin and other party moderates. Progressives and moderates are also divided over the tax hikes Biden has proposed to cover the cost of the bill and narrow wealth inequality. 

“The No. 1 thing that inflation is doing is pushing the top line of the bill down because even in the best case, fully paid-for bills aren’t really fully paid-for. There’s always some gamesmanship to get them there,” Cole said. 

“The bill is going to bring the pace of spending in the economy up, even from where it is now, and given the inflation we’re getting that means that a lot of moderates are balking on this.” 

But Sahm stressed that decisions about spending money on expanding America’s productive capacity, most of which would not kick in until several years later, should not be based on the temporary constraints from the pandemic. 

“Doing the ‘better’ part of the ‘building back’ is not going to pour more gasoline onto the fire because the money is not going to go out that fast. And when it finally does go out, it’s going to take pressure off the economy, not dial it up,” Sahm said. 

“The economy is recovering. It is on the right path, but we’re not on the right path over the next 10 years if we don’t do something. February of 2020 was not good enough.”