Welcome to the Great Reallocation

Radio discussion today discussed, among other topics, whether or not the economy could be growing when fast food places needed to close at 4pm on Sunday. North Dakota dealt with this problem before, notably during the rapid rise of the oil industry in the state. We need to confront facts about labor markets right now. Workers have preferences and, apparently, some degree of market power right now. These are leading to changes in labor allocation decisions. We had the Great Recession, the Great Resignation, so think of this situation really as the Great Reallocation.

Yes there have been retirements, and some early retirements, but many of these were likely hanging on longer than you might expect anyway. Translation: you should anticipate their attachment to work had some possible reasons to leave. What we see right now is workers making decisions over multiple dimensions such as flexible scheduling, benefits, proximity to family, safety (COVID and other), and yes wages. Each worker makes their decision with their own weights on these factors and, voila, we get labor force allocations.

Employers needing workers need to think about how to appeal across these different dimensions (I did not even mention age, which I suspect drives weights on these significantly) and there will still be workers leaving the workforce or waiting for something better. To the extent their savings or a change from a two-earner to one-earner household allow this, so be it. That is their decision.

If the Great Reallocation allows people to find higher value added employment that is a win for the economy overall, even if you are not able to get a burrito when you want it. Growth is not conditional on getting every product you want exactly when you want it. We are still growing in the economy, it is just under constraints not seen at the national level for a long time.

More to come.

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