Hotels in New York’s Adirondack Mountains are having an easier time hiring this summer, in part because immigrants are pouring into the country in greater numbers and providing a steady supply of seasonal relief that was hard to come by during and just after the pandemic.
It’s making staffing less stressful for companies like Weekender, a brand that includes seven rustic hotels in and around the region. The company has managed to hire six cultural exchange workers this summer, up from four last year. And similar stories are playing out across the country, offering good news for the Federal Reserve.
Fed officials are trying to fight inflation by raising interest rates and slowing the economy. A large part of the task involves restoring the equilibrium of the labor market, which 23 months in a row it had significantly more jobs available than workers to fill them. Officials worry that if competition for workers remains fierce and wages continue to rise as fast as they have, it will be difficult to completely eliminate rapid price increases. Companies that are paying to attract workers will try to charge more to cover their rising labor bills.
The Fed can help cool the job market by reducing demand, but the central bank has been getting more help than expected from a growing supply of workers. In recent months, workers have poured into the job market in numbers that have surprised politicians and many economists.
The development is due in part to a rebound in immigration, as the United States eased pandemic-related restrictions, removed processing backlogs and enacted more permissive policies. Job supply has also received a boost as some demographics, including women in their prime working years, have returned to the job market in greater numbers than anticipated, pushing their employment rates to record highs.
That influx has made the Fed’s job a little less painful. Hiring has been able to proceed at a good pace without further overheating the labor market because job seekers are available to replace those who are being caught. Unemployment has remained stable around 3.5 percent, and some data even suggests that staffing is becoming less demanding. Wage growth has begun to slow, for example, and workers are no longer pulling such long hours
“Monetary policy is part of the story to move demand toward supply, but any help we can get from increased supply is good news,” said John C. Williams, president of the Federal Reserve Bank of New York. In an interview with The Financial Times this month.
Employers have added about 280,000 workers a month so far in 2023. Job gains have been gradually slowing, but that’s nearly triple the pace of 100,000 that Fed Chairman Jerome H. Powell, suggested that he hoped it would be necessary Provide jobs to a constantly growing population.
The growing supply of workers has allowed the Fed to accept faster-than-expected hiring without reining in the economy even more aggressively. Fed officials, who raised interest rates above 5 percent from near zero in March 2022, have pushed them ever slower in recent months. Politicians are expected to raise rates by a quarter of a point at their meeting this week, to a range of 5.25 to 5.5 percent. Many investors are betting the decision, which will be announced on Wednesday, could be the Fed’s final move for now.
What the Fed does in the remainder of 2023 will depend on economic data. Inflation, which has slowed down considerably from its peak in June 2022, continue moderate? Are job gains and wage growth still declining? If the economy maintains strong momentum, officials may feel the need to make another move this year. If it gets cold, they may feel comfortable stopping the frequency increases. In any case, the authorities have been signaling that rates are likely to remain high for some time.
When it comes to the labor market part of the puzzle, key officials have signaled that they believe the next phase of restoring balance could be the most difficult. Policymakers have welcomed the new job supply in recent months, but some doubt the trend can continue. Mr. Williams suggested that immigration could remain strong, but that it might be difficult for the turnout (the party that is working or seeking) to go much higher.
“I don’t think there’s much room for that to continue to be a big driver of demand-supply rebalancing,” Williams said in his July interview, explaining that the Fed will need to continue using a policy of slowing labor demand to reduce inflation.
Some economists and labor groups think officials like Williams are being too pessimistic about the prospects for continued improvement in the job supply: Immigration numbers continue to rise, and flexible and remote work arrangements could mean people who couldn’t work in the past can now do so.
“I think the Fed probably underestimated it because of the ability of the labor supply to continue to improve,” said Skanda Amarnath, executive director of Employ America, a research and advocacy group focused on the labor market. “I think they are probably underselling it even now.”
The worker shortage began to hit in late 2020, after deep layoffs and immigration restrictions reduced the workforce. He civilian labor — which includes people who are working or looking for work — plummeted by eight million people at the beginning of 2020.
But the supply of workers has since recovered by some 10.6 million people. That recovery is due in part to an increase in the foreign-born labor force, which has accounted for about one in three potential workers added since the low point of the pandemicbased on data from the Department of Labor.
Legal immigration has been gaining steam as processing backlogs are cleared and Biden administration policies allow it. more refugees to the country, said Julia Gelatt, associate director of the US Immigration Policy Program at the Migration Policy Institute. Undocumented immigration has also been notable, heightened by political turmoil abroad and the lure of a comparatively strong and stable US economy.
“We are seeing a considerable increase in immigration,” said Ms. Gelatt. “Certainly a rebound to pre-Trump, pre-pandemic normalcy.”
The recovery in documented immigration is clear in the visa data. About 1.7 million workers may enter the country this year if current trends continue, about 950,000 more than at the nadir during the pandemic, Courtney Shupert, an economist at MacroPolicy Perspectives, found in an analysis.
In fact, immigration may be even stronger than it was before the pandemic, when President Donald J. Trump’s policies reduced the number of foreigners entering the United States. The number of potential workers entering the country on visas in May alone was about 50,000 more than normal between 2017 and 2019, he found.
Immigration is not the only potential source of new labor supply. Employment rates have been rising across the board, with the share of disabled people and women from 25 to 54 years that work reaching new highs, possibly spurred by a shift to more remote work and more flexible hours that took place amid the pandemic.
“It’s given us a supply of workers that we haven’t had before, because workplaces are more flexible,” said Diane Swonk, chief economist at KPMG.
The result has been useful to businesses like Weekender hotels in the Adirondacks. The company’s six cultural exchange visa workers 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 has also found it easier to compete for overall employees after a few years of adjusting. Weimer estimated that pay has risen 10 to 15 percent in the past 15 months, but said wage growth was beginning to cool.
“Now we are starting to have more definition in career progression and have salaries tied to performance and promotion, rather than just to the market,” he said. “There is definitely less salary pressure than a year ago.”
Of course, the new labor supply can also boost demand: As more people work, they earn money and spend it, said Jason Furman, an economist at Harvard, offsetting any drag on inflation. That does not mean that improving the labor supply is not useful.
“It is a way to have a higher rate of job growth without inflationary pressures,” he said.
But even as employers and economists embrace a slowly normalizing labor market, the supply of workers faces a major headwind: an aging population. America is aging as baby boomers, a great generation, move into their retirement years, and older people are much less likely to work.
That’s why some Fed officials doubt that increasing the labor supply can do much of the heavy lifting when it comes to rebalancing the labor market, a skepticism shared by some economists.
“I think we will still have a supply shortage,” said Yelena Shulyatyeva, a senior economist at BNP Paribas.