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Unlike following past downturns, the
labor market is expected to heal in record time as the US economy exits the
pandemic recession. In prior recessions, the unemployment rate took four to
seven years to return to its natural rate*. However, we project the
unemployment rate to fall below its natural rate (currently estimated by the
Congressional Budget Office to be about 4.5 percent) in early 2022, only
about two years after the recession started.
What are the implications of this rapid recovery? Wage pressures tend to
develop when the unemployment rate falls below its natural rate for a
sustained period. In a tight labor market, workers can easily switch to
higher-paying jobs and ask for raises. We are now experiencing a severe
example of this process; wage growth accelerated in recent months, but mostly
due to temporary factors that will ease toward the end of 2021. However,
after this brief pause, we can also expect wage pressures to resume in late
2022 and beyond due to ongoing demographic shifts in the US population that
pre-date the pandemic.
For more details on the post-pandemic recovery in employment and a variety of
other timely insights on the US labor market, please visit The Conference
Board’s new Labor Market Chart Hub.
* The natural rate of unemployment is the unemployment rate that would exist
in a growing and healthy economy.
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