Thread by @JedKolko, Some Friday thoughts on labor supply, inspired by @Neil

Some Friday thoughts on labor supply, inspired by @Neil_Irwin thoughtful piece in @UpshotNYT on the flip from low demand to constrained supply in the economy.

https://www.nytimes.com/2021/04/09/upshot/economy-supply-shortages.html

1/">https://www.nytimes.com/2021/04/0...

In 2020, There Was an Epic Collapse of Demand. Now, the Problem Is Supply.

Recent setbacks raise doubt about how quickly businesses can respond to customers who seem intent on spending freely.

https://www.nytimes.com/2021/04/09/upshot/economy-supply-shortages.html

Concerns about the virus and the extra burden of caregiving are surely holding some people back from job-searching. Some people might be hesitant to take in-person jobs. And mothers& #39; employment continues to lag both fathers and women without kids.

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But what about disincentives from unemployment insurance? Compelling research that @Neil_Irwin cites showed that UI didn& #39;t have a meaningful effect on labor supply last year. But this year is very different. There are 3 reasons why the effect could be stronger now.

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First: there are more job openings now. Any disincentive effect would have a bigger impact on hiring now, when there are fewer searchers/applicants/unemployed per opening. Job postings on @indeed are 16% above pre-pandemic baseline now -- huge change vs. last year.

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The author of last year& #39;s UI research make this exact point: "When there are too many applicants per job, one person not applying makes no material difference to the job being filled." Context matters, and this year& #39;s context is very different.

https://econofact.org/have-enhanced-unemployment-benefits-discouraged-work

5/">https://econofact.org/have-enha...

Have Enhanced Unemployment Benefits Discouraged Work? | Econofact

The CARES Act added a $600 federal benefit that increased the generosity of state unemployment insurance. But many factors impact the intensity with which the unemployed seek work.

https://econofact.org/have-enhanced-unemployment-benefits-discouraged-work

Second: as people decide whether to search now or later, expectations matter. Job postings are on the rise, and forecasts are strong. A job-seeker today is probably more confident about finding a job 3-6 months in the future than a job-seeker would have been a year ago.

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Third: leisure time is more valuable this summer than last summer, as more of the economy reopens. The trips people couldn& #39;t take last summer can happen now.

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These are all reasons why UI benefits could plausibly have a bigger disincentive effect on labor supply and hiring this summer than last summer. Of course it& #39;s hard to disentangle from other reasons (safety, caregiving burdens) holding back labor supply. Hindsight will help.

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And of course that doesn& #39;t mean UI benefits are bad! They are essential relief. But we shouldn& #39;t dismiss disincentive effects out of hand this summer based on compelling research that showed little disincentive effect last summer.

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And if -- and I& #39;m only saying IF -- there& #39;s a disincentive effect now, there could be a big jump in job-seeking late summer / early fall, especially since the end of enhanced UI benefits coincide with the start of the school year.

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