Americans Return to Work as Biden Administration Work Disincentives Expire, but Jobs Remain Over 7 million Below Trend

February 04, 2022

Key Takeaways:

  • The U.S. economy created 467,000 jobs in January 2022 as the American people demonstrate their resilience in the face of omicron and return to work following the expiration of the work disincentives in the Biden Administration’s American Rescue Plan Act.
  • In the five months since the expiration of “enhanced” unemployment benefits in September 2021, jobs growth has increased by 50,000 per month, compared to the five months prior to expiration.
  • After flatlining for much of 2021, the labor force participation rate jumped in January after the expiration of the Biden Administration’s universal basic income-style anti-work Child Tax Credit.
  • The U.S. economy remains over 7 million jobs below the pre-pandemic trend, and even if this pace of job growth continues, the economy will not return to trend until fall 2023.
  • In the meantime, American families continue to suffer the effects of the 40-year high inflation rate of 7 percent from 2021, which has amounted to an $855 inflation tax.

As evidenced by the strong jobs numbers just released by the Bureau of Labor Statistics—showing job growth at 467,000 for January—the biggest economic stimulus continues to be the expiration of Biden Administration policies passed earlier in 2021 that implemented wide-ranging work disincentives. In the five months since federal “enhanced” unemployment benefits expired in September, jobs growth has increased by 50,000 more per month compared to the five-month period before expiration. However, the pace of recovery remains more than 100,000 jobs per month behind the post-July 2020 Trump Administration recovery (the gap is larger if one includes the dynamite jobs rebound in late spring and early summer 2020), and the economy remains over 7 million jobs down from its pre-pandemic trend, as shown in figure 1. At the current pace of recovery—barring passage of more work disincentives—the labor market will not reach trend until fall 2023, raising the risk of a prolongment of labor shortages.

One possible green shoot of optimism is the January uptick in the labor force participation rate following the expiration of the Biden Administration’s Child Tax Credit, which the American Rescue Plan Act had degraded by stripping it of work requirements and converting it into a universal basic income-style pilot program. The 62.2% rate from January (shown in figure 2) is still 1.2 percentage points below the pre-pandemic level of 63.4%, but the 0.3 percentage point jump over December 2021 was larger than any monthly jump during 2021. This boost in labor supply after the termination of the Biden Child Tax Credit is consistent with recent research out of the University of Chicago estimating that this anti-work policy would drive 1.5 million workers out of the labor force. Interestingly, the labor force increased by 1.4 million people in January—the first month after the expiration of this policy, with most of the rise coming from prime-age (defined as between 25 and 54 years old) workers, indicating that the ongoing labor shortage is not just an artifact of early retirements.

 

Americans, though Resilient, Continue to Suffer

Americans are demonstrating their resilience and working spirit in the face of anti-work policies and a bungled, unpredictable pandemic response coming out of Washington D.C., but warning signs remain, and there is still considerable ground to recover. The share of unemployed workers who have been jobless for over 26 weeks is 35% higher than before the pandemic, and the number who are unemployed due to permanently losing their job rather than being temporary laid off is 25% higher than pre-pandemic levels—raising the risk that these workers will experience permanent wage losses, lose critical workforce skills, or leave the labor force entirely and end up permanently dependent on government. In addition, while employment in white-collar management, professional, and related occupations has fully recovered, service occupations, sales and office occupations, and production occupations have yet to return to pre-pandemic employment levels. In the meantime, families continue to suffer under the burden of 40-year high inflation, with the 7% inflation rate in 2021 translating to an $855 inflation tax for the typical worker—assuming they are even able to buy the goods that they want. The labor shortages and supply chain disruptions continue to plague consumers and small businesses alike, and at the moment, the only relief on the horizon is the prospect that the Biden Administration will be unable to pass further harmful policies that advance its progressive ideological agenda, including work disincentives, at the expense of the economic recovery.

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