IU prof examines impact of low unemployment
A professor at the Indiana University Kelley School of Business says the nation’s unemployment rate shows that the U.S. is not currently in a recession but there is still more work to be done when it comes to inflation. Last month, the unemployment rate dropped to 3.4%, a 50-year low, and the demand for labor is still high compared to the supply of workers, according to Andrew Butters.
“But one thing to also keep in mind is that because of this really tight labor market, the Federal Reserve might need to continue raising interest rates, something that it’s been doing, obviously, during the later half of 2022, and is likely to potentially need to continue doing in the 2023,” said Butters, an assistant professor in the Business Economics and Public Policy department at the Kelley School.
In an interview with the Associated Press, Butters said there has been a push from businesses and government officials to move jobs, particularly in manufacturing, back to the U.S.
“One motivation contributing to this shift has actually come about from a consequence of the pandemic recession,” he said. “The pandemic recession really illustrated how fragile global and international supply chains can be when they’re subject to perhaps…public health or other geopolitical risks associated with them.”
However, a challenge with bringing more jobs back to the country when unemployment is at a record low is the difficulty in finding workers to fill those roles.
Butters said the supply for both workers and goods remains too low compared to the demand, which has led to the continued rise in inflation.
The Federal Reserve has been aggressively raising interest rates in order to reduce demand, but Butters said there also needs to be improvement on the supply side.
“One indicator that I’m paying particular attention to is the labor force participation rate. That’s a indicator of how many workers are just out there in the economy looking for a job, and this has really actually remained stubbornly low since the onset of the pandemic,” he said.
Last week, the Fed announced a quarter-point increase in interest rates, which was the smallest increase since last March, but more increases could be coming.
Butters said while the last six months of data have been comforting as it relates to inflation, there is still a long way to go to bring demand back in line with supply.