The U.S. economy is facing the worst labor shortage in close to a century, according to new research, raising the prospect of prolonged higher-than-usual inflation.
In an analyst note to clients, Goldman Sachs economists, led by Jan Hatzius, estimated that there is a shortage of 4.6 million workers in the U.S. – the most since the World War II period. That number takes into account the total number of available jobs, of which there is a near-record, and the size of the labor force.
As a result, Americans' incomes are rising across the board as employers have hiked wages in an increasingly competitive market to hire new workers. The Goldman economists said they expect employers to face an even tougher, and more expensive year, finding workers: Wages are expected to climb 5% in 2022 as companies fight for talent.
Some economists have warned that rising wages could fuel even higher inflation – a jarring possibility, given that consumer prices already surged 7.5% in January, the fastest pace since February 1982. The combination of high inflation and rising wages has fueled concern about the possibility of a wage-price spiral, a 1970s-style phenomenon where high inflation leads to pay hikes, when in turn leads to more spending and more expensive prices.
Federal Reserve Chairman Jerome Powell has largely downplayed the possibility of a wage spiral, though he cautioned that policymakers are closely watching for signs of out-of-control wage hikes. The central bank is widely expected to hike interest rates for the first time in three years during their meeting next month to combat the price surge.
"Wages are not a big part of the high inflation story that we're seeing," Powell said in December. "We don't see this yet, but if you had something where real wages were persistently above productivity growth, that puts upward pressure on firms and they raise prices."
The estimates of job market tightness come even as payrolls remain below pre-pandemic levels, with roughly 2.87 million fewer jobs than there were in February 2020. The labor force, meanwhile, is short about 900,000 where it stood before the pandemic shutdown broad swaths of the nation's economy.
The Labor Department estimated earlier this month that there are 10.9 million open jobs.
The number of available jobs has topped 10 million for seven consecutive months; before the pandemic began in February 2020, the highest on record was 7.7 million.