Why Is the Labor Market so Tight?

Apollo Chief Economist

Foreign-born employment in the US is back at the pre-pandemic trend, and native-born employment is still 6 million jobs below the pre-pandemic trend, see the first two charts below. 

In other words, the post-Covid normalization in the labor force participation rate has mainly been driven by immigration.

At the same time, the number of retired individuals has remained on trend, see the third chart.

The bottom line is that even taking into account that about 1 million died from Covid, there are still around 5 million native-born workers missing.

These 5 million missing workers are the reason why the labor market is tight and why wage inflation is likely to remain elevated.

Put differently, there is still plenty of room for job growth.

Foreign-born employment back at pre-pandemic trend
Source: BLS, Haver Analytics, Apollo Chief Economist
Native-born employment 6 million jobs below pre-pandemic trend
Source: BLS, Haver Analytics, Apollo Chief Economist
US retired population relative to trend
Source: Kansas City Fed, CPS IPUMS, Haver Analytics, Apollo Chief Economist

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