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Why the labor shortage won’t last long

Rick Newman joins Myles Udland, Brian Sozzi, and Julie Hyman to debunk some of the myths behind the labor storage and what voter’s main focus could be in the upcoming midterm elections.

Video transcript

JULIE HYMAN: When will the labor shortage end? Along with is inflation transitory, I guess these are the two hottest questions in economics right now. Rick Newman has the answer to one of them, about labor, for us, looking at the various criteria or various things that are holding back people from rejoining the workforce. So give us a date, Rick.

RICK NEWMAN: Well, I think we're going to have significant improvement in labor supply by the end of the year. It may be back to normal by the end of next year. But let's just break this down a little bit. There are probably four things that are actually keeping people from going out and looking for jobs. We've heard a lot about jobless aid, and this might be a disincentive to work, but that is probably-- it probably is, but I think it's probably overblown.

We have some other things going on. Working parents obviously have unusual childcare demands with kids from home, and there also are some daycare facilities that have just shut down. We have people who are still worried about getting COVID. And that could add up to a few million workers. And then we've had a spate of early retirements. People have retired at about double the pace that they did before the pandemic. So you put those all together, and you can say, well, when are those-- each of those four things going to ease? And that gives you some idea of when we're probably going to get more labor supply.

So the federal jobless aid, that expires in September. So if that is a factor keeping people at home, it's not going to be a factor after the first week of September. And then it looks like schools are mostly going to reopen, barring anything unforeseen. So parents are going to get a break, sending their kids back to school. And you know, so that's why I think we will see some meaningful improvement by the end of the year, and then slower but more thorough improvement in 2020.

MYLES UDLAND: And Rick, we're halfway through 2021, which means it's time to start talking about the next election cycle. Certainly the economy, as it is for every cycle, will be front and center here, but an economy that is going to see inflationary pressures for the first time in a long time, even if they are indeed transitory, in which this labor issue is going to be at the center of the conversation around how we should proceed, is this labor shortage, in your mind, going to actually be top of mind when it comes to, again, these critical House races, with Democrats, you know, having a slimmer margin in the House than they had coming out of 2018?

RICK NEWMAN: I don't-- I don't think it is going to be an issue, Myles. And I'm not even sure inflation is going to be an issue. So we're talking about 15 months from now, let's see, when voters are making up their mind in the 2022 midterm elections. So you know, I think-- just look at the factors I just outlined. I think most of those things will basically be back to normal. I mean, there is one long-term trend going on, which we have a-- which is we have an aging workforce. And so we're going to have lower participation, slightly lower participation in the labor force participation rate. But that's not a political issue. And I think we're going to be close to firing on all cylinders 15 months from now.

As for inflation, since you brought it up, [INAUDIBLE] think about this. One reason we're seeing high inflation now is the so-called base effects. So prices were depressed a year ago, if you're doing an annual comparison, but a year from now, prices might be artificially high right now in the baseline, so we could actually see price declines by this time next year. Plus, some of these supply imbalances for things like cars, appliances, and other things like that will be straightened out.

So that's my best guess. I don't think that necessarily means Biden's Democrats will prevail in the midterms, but I think they're-- I think they're going to have a pretty good narrative on the economy.

JULIE HYMAN: We shall see interesting. Predictions here from Nick New-- Rick Newman. We will save this segment and play it back 15 months from now. Appreciate it.

RICK NEWMAN: I'm all for it. Bye, guys.

JULIE HYMAN: Bye.