Why so many jobs are going unfilled

Despite all the recent headlines about layoffs and strong jobs growth, "really large numbers of jobs in the United States" are still waiting to be filled, said Nick Eberstadt, economist and demographer at the American Enterprise Institute.

“It's really unfamiliar what's happening now,” Eberstadt told Yahoo Finance. "We've got men and women who are sitting on the sidelines of the economy and not applying to these jobs.”

The problem, according to Eberstadt: "The prime age male component of the labor market," or men who have left the labor force and are not looking for work. The trend, which he describes in his recently updated book, "Men Without Work," has been underway for two generations now.

“We have this remarkable paradox where we have very high numbers of prime-age men who are neither working nor looking for work at the same time that we've got a unprecedented, peacetime labor shortage where we have over 10 million unfilled open positions in the economy,” said Eberstadt.

The economist estimates roughly 7 million men between the ages of 25-54 are believed to be sitting on the sidelines, not looking for work. Those people are not accounted for in the unemployment rate, which ticked down to 3.4% last month.

'Excess retirements'

A rise in the stock market and housing prices during the pandemic may have given older workers the ability to retire early at higher than expected levels, triggering what Fed Chair Jerome Powell has referred to as “excess retirements.”

“Labor demand substantially exceeds the supply of available workers, and the labor force participation rate has changed little from a year ago,” Powell said following the Federal Open Market Committee’s two day meeting last week. He referred to the labor market as “extremely tight."

Last year’s decline in stocks and slowing real estate market may have brought some of those retirees back into the labor force, but not at the rate economists would hope.

“If we had kept on pre-COVID trends, roughly speaking, we'd have about 4 million more men and women in the workforce today than we have,” said Eberstadt.

'Immigration has to play a role'

Immigration is another demographic factor. “Looking in that rear view mirror, it looks like there was a steep drop off in 2021 and 2020, and that might account for a million of the 4 million gap,” he said.

Eberstadt added: “Over the past half century, immigration has been a pretty important component in labor force, growth. And, since we know that the US is at considerably below replacement childbearing pattern right now, if the U.S. is to have stable or increasing workforce size, immigration has a role to play there.”

The demographic trends are not only an issue for the labor market, but also for the economy as a whole. Older people consume less, and pay fewer taxes, compared to the younger cohort of tax-paying workers.

“So the problem for the United States is that while there’s some modest population growth in the 25-64 year old group, the growth in the population of people aged 65 and older is so large that more people are going to be moving out of their peak spending years and into the years with the lowest income and lowest consumption,” Eric Basmajian, founder of EPB Research recently wrote in a note titled "Deep Dive Into Global Demographics."

Will layoffs solve the problem?

It’s clear some companies over-hired during the pandemic, to keep up with a digital demand for goods and services. Now many of them are announcing layoffs, though only a fraction of their total workforce. As severance packages run out and the economy decelerates, more people are expected to re-enter the workforce.

“As the economy slows, the enormous disproportion in the number of unfilled jobs will decline somewhat,” said Eberstadt. “But will it drop by 6 million? Will it drop by 7 million? Will it get back to the low numbers of unfilled positions that we saw in, say 2009, 2010?"

That, he added, "Would take quite some doing.”

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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