The Richmond Federal Reserve president said Friday that policies to expand the workforce are worth considering in the face of possible long-term labor market challenges. His comments came just after a fresh U.S. jobs report and weeks before another possible interest rate hike from the U.S. central bank.
“Labor supply looks like it'll remain constrained, and the Fed’s efforts to bring demand back into balance won't be easy,” Tom Barkin said at the Virginia Economic Summit and Forum on International Trade in Richmond.
The Federal Reserve is tasked with promoting “the goals of maximum employment [and] stable prices” by managing the American money supply. Typically, rises in interest rates slow the economy and inflation by increasing the cost to borrow money — conventionally understood to be at the expense of employment rates.
The Fed last tightened the money supply by raising interest rates on Nov. 2 by 0.75%. Despite the Fed raising interest rates six times this year, the economy added 263,000 jobs last month—fewer than the 284,000 added in October, according to the Bureau of Labor Statistics.
“That's roughly three times the break-even level of workforce growth. In other words, we add about 90,000 people to the workforce every month, we added 263,000 jobs,” Barkin said. “So, we're still adding jobs faster than we're adding workers.”
The Fed’s Open Market Committee — a rotating panel that makes decisions about the nation's money supply — will next meet on Dec. 14, and Fed chairperson Jerome Powell signaled Wednesday that the committee would continue to raise rates but at a slower pace than seen over the past year.
Monetary policy is considered one tool in managing the economy along with fiscal policy, which covers government spending and taxation.
“Increasingly, I worry that we're moving to an environment where labor is short, not long,” said Barkin, referring to a shortage of workers. “The situation can be managed — other countries have proven that — but it requires real intentionality … We can be exploring policies that work the supply side, too, by encouraging workforce participation and preparation.”
He pointed to Canadian policies around flexible work and taxing second income-earners differently. Barkin also listed Japanese efforts to keep older workers employed and lowering barriers to legal immigration as worth exploring in the U.S.
Barkin also encouraged additional investment in education, licensing, and job training, as well as “reimagining” child and elder care.
Businesses have struggled to hold onto workers, Barkin said, citing the “quits rate.” That rate tracks when employees leave their job voluntarily, pointing to leverage workers have in the current labor market. The quits rate hit a new record high of 3% in November 2021; it was last recorded at 2.6% in October 2022.
Jobs gains in the local government sector were among the highest, along with leisure and hospitality: Local governments added 42,000 jobs in November, compared to the average gain of 25,000 per month. But government employment is overall down 2% since February 2020.
Mel Borja, an analyst at the Commonwealth Institute, said that localities could better retain government employees through collective bargaining agreements.
“The people who know best how to take care of themselves is the workforce,” she said. “They know what they need, they know what they want in terms of wages, and working conditions and benefits.”
Richmond City Council approved a collective bargaining ordinance in July, permitting five types of bargaining units: administrative and technical, fire and emergency services, labor and trades, professional, and police. Hiring a labor relations liaison is a crucial next step for the city to set up its collective bargaining infrastructure.
