Home Price Boom Impacting Labor Force?

(ReclaimingAmerica.net) – According to a report, the housing price boom the United States experienced over the past couple of years may have caused the current decline in labor force participation and shortage of workers in the US economy.

In January 2023, the labor force participation rate in the United States was 62.4%, still down from the 63.3% figure before the COVID-19 pandemic.

At the same time, in December 2022, job vacancies reached 11 million, 1.9 times more than the number of those unemployed.

“The rise in labor force participation that the US experienced in 2021 has stalled out. We have brought down unemployment and raised wages, but workers are unexpectedly not returning,” Breitbart News comments in a report.

The situation has “surprised and alarmed” the Federal Research leading it to fear it may cause inflation to remain high despite its anti-inflation measures or even to spike further.

“Despite very high wages and an incredibly tight labor market, we don’t see participation moving up, which is contrary to what we thought,” Fed chairman Jerome Powell said in December.

The labor force participation decline is the highest among older Americas. In January, the participation rate among those aged 25-54 stood at 82.7%, almost the same as 83% in February 2020.

However, among those 55 and older, it was only 38.7%, down from 40.3% before the coronavirus pandemic.

One of the main reasons for this development may be the unexpected windfall that older homeowners have received due to the higher housing market prices, leading them to stop working,

This conclusion comes from a paper by two University of British Columbia scholars, Jack Y Favilukis and Gen Li, both of the University of British Columbia.

The paper is entitled “The Great Resignation Was Caused by the COVID-19 Housing Boom.”

It finds that older homeowners are “more likely to reduce labor supply when housing returns are high.”

Favilukis and Li conclude that renters of all ages participate more in the labor force when prices rise, and so do young homeowners. In contrast, middle-aged homeowners remain unresponsive to home price increases. Neither of those is the case with older homeowners.

The paper establishes that there would have been no decline in labor force participation among older Americans if housing returns in 2021 were equal to 2019.

At the same time, however, renters and younger homeowners would have worked less. As a result, these groups now largely offset the withdrawal of older workers.

“Because of this trade-off, the US labor force participation rate would have been only slightly larger if the US did not experience the real estate boom in 2021,” the scholars hypothesize.