How are labour markets affecting central banks?

The remaining labour force exits can be viewed in light of other potentially overlapping factors, but also each a key driver in their own right. 

Health concerns are cited as a key reason for some workers, especially those in high social contact sectors, from re-entering the workforce. This is not surprising, but fortunately likely to be a temporary factor and bound to reverse as concerns over disease dissipate over time. 

The other, perhaps less appreciated, factor is migration. In many countries, migration accounts for more than one half of population growth, and migrant workers are often over-represented in the health, social care, and hospitality sectors of the economy. Those are the sectors most affected by the pandemic. 

This factor has been particularly important in the UK, where the shock to the economy created by efforts to control the pandemic has been compounded by the UK leaving the EU and the end of the transition period in 2021.

A survey of European households suggests that as many as one in three currently receive ancillary income from online content creation platforms, e-commerce and non-fungible token/trading platforms.

The EU is a key source of workers for a number of sectors.

Indeed, acute worker shortages experienced in the agricultural, driver haulage and social care sectors have prompted the government to announce temporary 12-month visa streams. 

Lastly, a portion of the current labour force drop-outs may reflect the so-called ‘great resignation’ trend.

In the US, record number of workers are leaving their jobs every month. The health crisis may have instigated a broader holistic re-think by some to leave unfulfilling jobs and to re-assess their work-life options.

A high quitting rate is generally viewed as a sign of optimism over the economic outlook, leading to short-term frictional unemployment, but there are reasons to believe that the current quitting trend could prove to be more long lasting.

Anecdotal evidences also suggest that it appears more common in low-wage industries, where generous sign-on bonuses are proving insufficient to lure workers back.  

Incentives not to work? 

The pandemic was a no-fault recession, and governments – having learnt the lessons of the financial crisis of 2008-09 – "went early, went hard and went households", to coin a phrase by my former boss, Ken Henry, the ex-Australian treasury secretary.

In the US, under three rounds of fiscal stimulus cheques, eligible adults could have received a total of $3,200 (£2,454) since the start of the pandemic, with a family of four receiving as much as $11,400.

In the UK and many European countries, governments subsidised up to 80 per cent of workers’ pay through furlough and short-term work schemes.