Oregon Office of Economic Analysis

By most measures the labor market is tight. The unemployment rate now stands at 4.1% which is lower than it’s been throughout Oregon’s history, other than the 2017-19 time period last cycle where the unemployment rate was roughly in the 3.5-4% range. Wage growth and labor income overall are booming as a result. Average wages are up 17% since the start of the pandemic, and total wages and salaries in the state are 11% above pre-pandemic levels. Our office’s forecast for wages has never been stronger, despite a somewhat lower employment outlook tied to the recession and slower population growth.

Even so, what’s interesting to note is that while all of the above is true, it’s not that labor demand is through the roof per se. Yes, Oregon firms are looking to fill a near-record number of job vacancies, but when combined with actual employment in the state, that really just brings us back to where we were pre-pandemic. This brings us to this edition of the Graph of the Week. Total labor demand in Oregon is strong, this economic recovery is 2-3x faster than coming out of the Great Recession but really firms are just struggling to staff back up to where they were two years ago.

Naturally the key question asked in the past year, and moving forward, is “when will the workers come?” Our office has talked about this a lot in terms of strong household finances — thanks to federal aid, strong wage growth, and record-setting asset markets — and how those especially intersect with folks having any other contingency when it comes to fear of the virus, childcare issues, and the like. This means for households where one adult is already working, that the second (potential) earner does not need to return to the workforce as quickly as you’d expect given their household finances.

An additional factor here is that with wages being so strong, there has been a decline in what economists call multiple jobholders. It’s exactly as it sounds. These are individuals working more than one job. Nationally, while multiple jobholders are increasing again in the past year, they are still down during the entire pandemic. The implication here is that the number of people working is relatively higher than the payroll job counts because if you switch from 2 jobs to 1 job, you are working, but it does look like the loss of 1 job in the payroll data. Mathematically this decline in multiple jobholders is not insignificant. Nationally the decline is equal to about 840,000 workers, and given national payroll employment is down about 3.6 million, it’s likely another factor impacting labor market dynamics. If we share those figures down to Oregon that’s more like 10,000 fewer multiple jobholders in the state and our employment is about 54,000 below pre-pandemic peak. Again, not an insignificant factor even if the math and dynamics aren’t quite as clean as those numbers suggest.

Overall our office remains labor supply optimists. One thing I would add is that while firms have had to really adjust to bring workers on in the past year, they have been able to do it. Over the past year — Dec ’20 to Dec ’21 — Oregon businesses added 107,000 jobs for a growth rate of 5.9%. The workers are coming back. Labor supply has increased. The state has now recovered more than 4 in 5 of the lost jobs at the start of the pandemic. Now, those gains are not quite as fast as businesses would have like, and the adjustments by businesses in terms of wage increases and the like are challenging. That said, in an inflationary boom like we are in, firms have been able to not only absorb those higher costs but also pass them on to customers.

Bottom Line: The labor market is tight. Workers are returning. Our office’s expectations are the labor market will make a full recovery in 2022. Wage growth will remain strong, albeit more in-line with full employment dynamics, if not a bit stronger (4-4.5% annual increases) than in the pandemic dynamics (8%). The wildcard here is inflation. We know inflation is not costless. To the extent inflation and inflation expectations become more entrenched in labor negotiations and wage gains, then these pandemic dynamics are likely to persist longer than anticipated. This cycle is different. While it presents its own set of challenges, to date these are a better set of issues to deal with than the jobless recoveries and lack of demand experienced in previous cycles.