Rapid Inflation, Lower Employment: How the U.S. Pandemic Response Measures Up

The United States has spent more aggressively than many of its global contemporaries protecting its economy from epidemics, a strategy that has helped fuel inflation faster – but also faster economic growth. There has also been a rapid increase in rehabilitation and employment.

Now, though, the United States is dealing with what many economists see as an unsustainable shortage of workers, which threatens to keep inflation high and may require a strong response from the Federal Reserve. ۔ Yet American jobs have not been as fully restored as in Europe and some other modern jobs. That fact must be taken into account. “

As interest rates rise and economists warn that a mild recession could at least lead to a rise in inflation, the risks are mounting that America’s ambitious spending will be accompanied by a tested legacy. Will end Rapid growth and a strong recovery in the labor market have made great strides, and economists in the theoretical realm agree that some money should be spent to avoid a repeat of the painful slow recovery that followed the previous recession. Was necessary But the benefits of this rapid recovery may diminish as prices are eaten up by rising wage checks – and even more so if high inflation forces the central bank to formulate a policy that would reduce unemployment. Be pushed on the road

Jason Firman, an economist at Harvard University and a former economist in the Obama administration, said: His concern, he said, is that “inflation may remain high, or the Fed may control it by reducing production in the future.”

The Biden administration has repeatedly argued that, in the face of rising inflation in the United States, the policy response to epidemics has also led to a stronger economy.

Jared Bernstein, President Biden’s economic adviser, said in a statement: “We have made great strides, we have reduced child poverty, we have better household balance sheets, we have some of the strongest labor markets in terms of metrics. It’s something I’ve never seen. ” Interview “Was there a warmth to the price with all these successes? Yes, but some of that warmth is visible in every developed economy, and we will not trade for the historic recovery that we helped.”

Inflation has risen worldwide, but prices have risen faster in the United States than in many other rich nations.

Consumer prices rose 9.8 percent year-on-year in March, according to a measure of inflation that eliminates homeownership so that it can be compared to previous countries. This was faster than in Germany, where prices rose 7.6% over the same period. UK, where they grew 7% And other European countries. Similarly, other measures show that US inflation is surpassing that of its global counterparts.

The relatively large jump in prices in the United States is due in part to the country’s ambitious spending. Research from Federal Reserve Bank of San Francisco Nearly half of the country’s annual price increases in 2021 were attributed to the government’s response to spending. Researchers have estimated the number, which is incorrect, comparing the results of US inflation to those of low-spending countries.

“The size of the package was much larger than in any other country,” said Oscar Jorda, co-author of the study.

The Trump and Biden administrations have pledged nearly ٹ 5 trillion to fight epidemics in 2020 and 2021 – far more than any other development spent as part of the country’s economy. Database set up By the International Monetary Fund. Most of this money went directly to households in the form of stimulus checks, extended insurance and tax credits for parents.

Payments to households have helped boost consumer demand and accelerate economic growth – a trend that continues into 2022. Global economic outlook Figures released last week by the International Monetary Fund show that the US economy is expected to grow 3.7 percent this year, more than the nearly 2 percent pre-epidemic trend and Expected 3.3% growth year-over-year average.

It grew even faster in 2021. And as the US economy expands, so does unemployment. after the Increased to 14.7%. By early 2020, unemployment was at an all-time low of almost 50 years before the epidemic.

This is a victory celebrated by politicians. Mr. Biden said in his tone State of the Union address Last month. O Important reportOn April 14, the White House noted that the United States recovered faster than other major exports, as measured by gross domestic product, consumer spending, and other indicators.

But at least the United States is less unique when it comes to the job market.

Unemployment in the United States The onset of the epidemic was partly due to the fact that US policies did little to discourage deportation compared to Europe. While many European governments paid companies to keep workers on their payrolls, the United States focused more on providing direct money to those who lost their jobs.

Unemployment fell sharply in the United States, but it was true elsewhere. There are now many European countries, Canada and Australia. Back to or below their pre-pandemic unemployment rateFigures from the Organization for Economic Co-operation and Development

And when it comes to the part of those who are actually working, the United States lags behind some of its global partners. The country’s employment rate. It is hovering around 71.4%.It is still slightly lower than the 71.8% before the epidemic.

In terms of competition, Eurozone countriesCanada and Australia have higher employment rates than before the epidemic, and Japan’s employment rate has fully recovered.

Nick Bennbrook, an international economist at Wells Fargo, said the restoration of Europe’s more complete employment could partly reflect its different regulations and different approaches to helping workers during epidemics. European aid programs effectively paid companies to keep people on payroll even when they could not go to work, while the United States provided direct assistance to workers through the unemployment insurance system.

There was a big consequence of this relatively subtle difference: because very few Europeans were separated from their employers, many went back to their old jobs as soon as the economy reopened. Meanwhile, epidemics in the United States have entered a period of soul-searching and job change.

Frequently Asked Questions on Inflation

The disruption is reversed. There are now 1.8 jobs open for every unemployed worker in the United States, which in some ways has given employees the power to demand more flexible schedules, better benefits and higher wages.

Wages in the United States are rising at the fastest pace in four decades, while wage growth in Europe has slowed. Mr. Bernstein, a White House adviser, described the situation in the United States as “the strongest job market in generations.”

But the red-hot labor market carries its own risks. For one thing, wage growth is not keeping pace with rising inflation for many, with some households being left behind but their paychecks growing. And rising wages could force companies to try to cover their costs by raising prices further.

Higher wages could be a “feeder for inflation,” Federal Reserve Bank of San Francisco President Marie C. Daley told reporters Wednesday.

“It’s extremely hot,” Fed Chair Jerome H. Powell said of the job market during a ceremony Thursday. “It’s our job to bring it to a better place where supply and demand are close.”

The huge US wage hike could mean that the Fed will have to react more aggressively to slow the economy. The central bank is trying to control inflation by raising interest rates to make money more expensive for borrowing, which could reduce costs and cool the economy.

But if the Fed has to raise rates to restore economic stability, it could touch the recession that raises unemployment. Mr. Powell and his colleagues have said they hope they can manage to soften the economy without affecting that kind of pain – but they acknowledge that recession is a threat.

Ultimately, the legacy of major US aid programs may depend on what happens in the coming months. If inflation moderates without painful action by the Fed – some economists still believe that at least it is possible if it ends, the supply chain returns to normal and workers return to the job market – then The short duration of the rapid rise in prices may seem relatively short. There will be a price to be paid for a strong economic recovery that in some ways outperformed the overseas performers.

But if central bankers decide they need to take tougher action, leading to a recession, it could reverse recent developments – and the consequences for low-wage workers. Worse are those who have experienced the strongest jobs and wage increases.

The war in Ukraine could complicate efforts to test US performance against its global allies. Economic growth in Europe accelerated late last year, but Russian aggression – and the accompanying increase in fuel costs – threatens to derail the recovery there. The United States may also face consequences, but it is relatively insecure about Russian and Ukrainian imports.

“Europe was doing well and I was very optimistic before the war,” said Gian Maria Melissi Ferretti, an economist at the Brookings Institution. “But now the shock of the war is completely disproportionate between the United States and Europe.”