The US workforce continues to shrink, dropping by 400,000 since March after almost reaching pre-pandemic levels.

The number of workers in the United States continued to shrink as companies struggle to find employees for vacant positions.

“The hope for many for a smooth landing is that you meet in the middle, as demand cools and the supply of labor increases, and we strike a much better balance between the two,” said Michael Pugliese, economist at Wells Fargo. The Wall Street Journal Sunday. “But if the flat lines of labor supply persist or continue to decline, you need to reduce demand further in order to cool wage growth.”

According to Labor Department data, the number of workers in the United States has fallen by 400,000 since March, a worrying sign after the number of workers approached pre-pandemic levels earlier this year. The total workforce is now about 600,000 smaller than it was in early 2020, before broad COVID-19 restrictions plunged the economy into recession.

The labor shortage has raised concerns that the economy will not achieve the “soft landing” that many had hoped for with the lifting of restrictions, with some economists saying the imbalance between labor supply and demand is the biggest threat to the US economy.

US robot orders increase 40% due to labor shortages, persistent inflation

Construction workers at a new construction site in Silver Spring, Maryland. (Reuters / Gary Cameron – RTX2FCR6 / Reuters Photo)

The labor force participation rate, which calculates the percentage of Americans 16 and older who are working or looking for work, fell to 62.1% in July from 62.4% earlier this year. The number is also well below the 63.4% rate recorded before the pandemic, according to the Labor Department.

The shortage has also contributed to nearly four decades of high inflation, which reached 8.5% in July. While the energy shortages and supply chain issues that fueled inflation last year have begun to subside, those pressures have been replaced by a tight labor market that has seen private sector wages and salaries grow 5.7% since last year.

The Fed has tried to slow inflation by raising interest rates, something economists say could also dampen demand for labor. Meanwhile, workers currently involved in the labor market see their roles expanding as companies struggle to fill holes in their organizations.

Workers lifting iron beams at the construction site

Workers erect a building under construction in Philadelphia. (AFP)

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Peter Berezin, chief global strategist at BCA Research, told The Wall Street Journal. “Employers may have to raise wages significantly in [inflation-adjusted] conditions, which will make life more difficult for the Fed.”

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