Hotels in New York’s Adirondack Mountains are finding hiring easier this summer, in part because immigrants are entering the country in greater numbers, providing a steady stream of seasonal help that was hard to come by during and just after the pandemic.
This makes staffing less stressful for companies like Weekender, a brand that includes seven rustic hotels in and around the region. The company managed to get six cultural exchange workers this summer compared to four last year. And similar stories are playing out across the country, offering good news for the Federal Reserve.
Fed officials are trying to curb inflation by raising interest rates and slowing the economy. Much of the task depends on rebalancing the labor market, which pro 23 months in a row they had significantly more jobs available than workers to fill them. Officials fear that if competition for workers remains fierce and wages continue to rise as fast as they have been, it will be difficult to fully stem the rapid rise in prices. Companies that pay to lure workers will try to charge more to cover their climbing labor bills.
The Fed may help cool the labor market by reducing demand, but the central bank is getting more help than expected from a growing supply of workers. In recent months, workers have piled into the labor market in numbers that have surprised policymakers and many economists.
This development is due in part to a recovery in immigration as the United States eased pandemic-related restrictions, eliminated processing delays and enacted more permissive policies. Labor supply also increased as some demographic groups – including women in their prime – returned to the labor market in greater numbers than expected, pushing their employment rates to record highs.
This influx made the Fed’s job a little less painful. Employment has been able to advance at a solid clip without further overheating the labor market because job seekers become available replace those who are caught. Unemployment has stabilized 3.5 percent, and some data even suggest that staffing is becoming less tight. For example, wage growth has started to slow and workers are slowing down it no longer pulls such long hours.
“Monetary policy is part of the story of getting demand toward supply, but any help we can get by increasing supply is good news,” said John C. Williams, president of the Federal Reserve Bank of New York. in the interview with The Financial Times this month.
Employers have added about 280,000 workers per month so far in 2023. Job gains have slowed gradually, but that’s nearly triple the 100,000 pace that Jerome H. Powell, the Fed chairman, suggested that it would be necessary provide jobs for an ever-growing population.
The expanding labor supply allowed the Fed to embrace faster-than-expected hiring without slowing the economy even more aggressively. Fed officials, who raised interest rates above 5 percent from near zero in March 2022, have been raising them more slowly in recent months. Policymakers are expected to raise rates by a quarter point to a range of 5.25 percent to 5.5 percent at their meeting this week. Many investors are betting the decision, to be announced on Wednesday, could be the Fed’s last move for now.
What the Fed does for the rest of 2023 will depend on economic data. It has inflation that has slowed significantly from its peak continue moderating in June 2022? Are job growth and wage growth falling further? If the economy maintains much momentum, officials may feel the need to take another step this year. If they cool down, they could feel a comfortable increase in stall speed. In both cases, policymakers are signaling that rates will likely have to remain high for some time.
As for the labor market part of that puzzle, key officials have indicated they think the next phase of rebalancing could be the more difficult one. Policymakers have welcomed the newfound labor supply in recent months, but some doubt the trend can continue. Mr Williams suggested that immigration may remain strong but that participation – the proportion of those working or looking – may find it difficult to climb much higher.
“I don’t think there’s a lot of room for that to continue to be a big driver of balancing supply and demand,” Williams said in his July interview, explaining that the Fed would need to continue to use policy to slow labor demand to lower inflation.
Some economists and labor groups believe officials like Mr. Williams are too gloomy about the prospects for continued improvements in the labor supply: Immigrant numbers are still growing, and flexible and remote work arrangements may mean people who couldn’t work in past times now can.
“I think the Fed has probably supported that that ability to continue to improve on the labor supply side,” said Skanda Amarnath, executive director of Employ America, a labor market research and advocacy group. “I think they’re probably selling it below cost even now.”
Labor shortages began to show in late 2020 after deep layoffs and immigration cuts reduced the labor pool. The civilian workforce — which includes people working or looking for work — fell sharply by eight million people in early 2020.
But the supply of workers has since rebounded by about 10.6 million people. That recovery was driven in part by an increase in the foreign-born workforce, which accounts for roughly one in three potential workers added since the lowest point of the pandemicbased on data from the Ministry of Labour.
Legal immigration is gaining momentum as backlogs clear up and policies of the Biden administration make it possible more refugees into the country, said Julia Gelatt, deputy director of the US immigration policy program at the Migration Policy Institute. Also notable was undocumented immigration, boosted by political unrest abroad and the pull of a relatively strong and stable American economy.
“We’re seeing a significant increase in immigration,” Ms. Gelatt said. “Definitely a return to pre-Trump, pre-pandemic normal.”
Renewal in documented immigration is clear in the visa data. If current trends continue, about 1.7 million workers may enter the country this year, about 950,000 more than at the lowest point during the pandemic, Courtney Shupert, an economist at MacroPolicy Perspectives, found in an analysis.
In fact, immigration may be even stronger than before the pandemic, when President Donald J. Trump’s policies reduced the number of foreigners entering the United States. The number of potential workers coming into the country on visas in May alone was about 50,000 more than was common between 2017 and 2019, it found.
Immigration is not the only potential source of new labor supply. The employment rate is growing across the board, with a share disabled people and women aged 25 to 54 who are working at new highs, perhaps bolstered by the shift to remote work and more flexible working hours that has occurred amid the pandemic.
“It’s given us an influx of workers that we haven’t had before because workplaces are more flexible,” said Diane Swonk, chief economist at KPMG.
The result was useful for businesses like the Weekender Hotels in the Adirondacks. The firm’s six workers on cultural exchange visas are spread across three of its seven properties, said Keir Weimer, the company’s founder, and are a small but important part of its 85-person workforce.
The company also has an easier competition for employees in general after several years of adaptation. Mr. Weimer estimated that wages have increased by 10 to 15 percent over the past 15 months, but said wage growth is beginning to cool.
“We are now starting to define ourselves more in career progression and pay linked to performance and promotion, rather than just the market,” he said. “There’s definitely less pressure on wages than a year ago.”
Of course, the new job supply can also boost demand: As more people work, they earn money and spend it, said Jason Furman, an economist at Harvard, to counter any drag on inflation. This does not mean that improving labor supply is not useful.
“It’s a way to get a higher rate of job growth without inflationary pressures,” he said.
But even as employers and economists have embraced a slowly normalizing labor market, the supply of workers faces a major headwind: an aging population. America is graying as the big generation moves into retirement and older people work much less.
That’s why some Fed officials doubt that rising labor supply can do much of the heavy lifting in rebalancing the labor market — a skepticism that some economists share.
“I think we will still have a supply shortage,” said Yelena Shulyatyeva, chief economist at BNP Paribas.
