Labor force participation ticked up to a pandemic high in July, a major win in the Federal Reserve’s battle to loosen up a historically tight labor market and tamp down on inflation.
The participation rate rose by 0.3 percentage point in August, bringing the share of Americans who are employed or actively looking for work to 62.4%. While it is still a full percentage point below its level in February 2020, it matches its level in March 2022 and is the highest since March 2020. It also bodes well that the surge was driven by people in their prime working years, aged between 25-54.
The Federal Reserve has long been looking to boost the country’s participation rate, which had been lagging even as the labor market rebounded in the wake of the 2020 recession.
The need to increase the number of people in the job market has become all the more crucial as inflation reached decades-long highs this year. Boosting the people in the labor market increases the labor supply for employers, who have had to raise wages in a bid to compete for workers and thus contributed to rising inflationary pressures.
Hybrid Work Policies
Flexible work policies may also be contributing to people’s decision to return to work, said Jan Szilagyi, CEO and founder of Toggle AI, an investment research firm. Hybrid or remote work policies can make employment a more appealing prospect for people who preivously wouldn’t have considered a full-time job.
“The pay is higher, the work hours and location are more flexible, this to me now actually makes sense to go after that income,” Szilagyi added, referring to the mentality shift that may be happening among workers.