Employment reaches record levels in advanced economies – 10/12/2023 – Market

Employment reached an all-time high in developed economies in the second quarter, despite growing pressures from high inflation and rising interest rates, according to data published this Thursday (12).

The share of the working-age population employed in the 38 OECD member countries exceeded 70% for the first time since 2005, the Paris-based organization said. This reflected record highs in more than two-thirds of countries, as well as the European Union (EU) and the eurozone as a whole.

Labor force participation also reached its highest level since 2008, among both men and women, with 73.7% of the working-age population working or looking for work. Even Italy—which has the lowest share of women working in the EU—recorded its best performance on both measures, as did France, Germany and Japan.

Economists offer several explanations for the persistent strength of labor markets, even as the economic outlook weakens: an aging population and lifestyle changes that have led to labor shortages; a pandemic-driven public sector hiring spree; and concerted efforts in countries like France to address long-standing problems with youth unemployment through subsidized training programs.

Unemployment has started to rise in some countries, including the US and the UK, since the middle of the year. Unemployment among young men—often an early indicator of a broader decline in the job market—also increased slightly. But the overall rate remained at an all-time low in August across the OECD, EU and eurozone.

“Resilience remains the name of the game in the labor market in the face of slowing labor market activity,” said Melanie Debono of consultancy Pantheon Macroeconomics in a note published last week after the latest euro zone data painted a similar picture.

The strength of the labor market has raised hopes that central banks can control high inflation without the painful waves of job losses that have accompanied previous periods of rapid monetary policy tightening.

But it has also allowed workers to push for higher wage growth, especially in countries like the UK where labor force participation is still well below previous peaks. Central banks fear this could fuel high inflation and force them to keep interest rates high for longer.

Although layoffs are becoming more widespread and wage growth is slowing, “the overall impression is of a return to normality after an overly exuberant post-pandemic recovery rather than a significant slowdown,” said Tamara Basic Vasiljev of consultancy Oxford Economics. “This may make higher interest rates necessary for longer.”

“High inflation and the resulting pressure on household finances are likely a factor driving increased labor force participation,” said Annabelle Mourougane, head of Trade and Productivity Statistics at the OECD.

Mourougane added that other trends, from increasing economic uncertainty and pension reforms to gains in educational attainment and rising female participation rates, may also be playing a role.