Skip to main content

Weekly global economic update

What’s happening this week in economics? Deloitte’s team of economists examines news and trends from around the world.

Now, however, we have an estimate of the quantitative impact of each factor. Former US Treasury secretary Lawrence Summers and economist Alex Domash have produced a study that offers a quantitative analysis of how various factors have reduced the size of the labour force below the prepandemic level. On the one hand, they worry that the continued tightness of the labour market is likely to fuel further wage gains that will contribute to continued inflation. In fact, they say that the rates of vacancies and quits are at a level normally associated with an unemployment rate below 2% (it is currently 4%). On the other hand, they offer hope that, once the pandemic is truly over, some of the people who left the labour force will return, thereby alleviating labour shortages and reducing upward pressure on wages. That, in turn, could be helpful in easing inflationary pressure. 

The authors of the study note that, in the two years of the pandemic, overall employment in the United States declined by 6.9 million. They estimate that, of this decline, 1.3 million is attributable to changing demographics unrelated to the pandemic. That is, the population continued to age, with many people retiring, and the successor generation was simply smaller. In addition, they estimate that 1.4 million jobs were lost due to pandemic-era immigration restrictions. 

Also, they estimate that roughly 1.3 million workers chose to retire early during the pandemic. Many saw their wealth rise rapidly due to increased savings and rising asset prices. In addition, many were likely averse to social interaction. Therefore, they chose to exit the labour force and will not likely return. 

The authors also estimate that 1.5 million workers exited the labour force because of COVID-19 concerns. Many people became immunocompromised, which likely increased their health concerns. Many who had been infected continue to have negative symptoms, and, at any given time, many are infected and possibly sick. These people choose to avoid work. Thus, the data indicates a sharp rise in the number of people calling in sick. The authors also estimate that 1 million people perceive a reduced incentive to work. This could be due to government support such as the enhanced child tax credit (which expired in December), a rise in savings, a rise in asset values, and a decline in the real purchasing power of wages due to accelerated inflation. Finally, the authors estimate that 400,000 people are not working because they refuse to comply with employer vaccine mandates. 

Of all the reasons offered, the ones that could be reversed once the pandemic is over amount to 4.3 million jobs. If some or all of these people could be convinced to return to the labour force, it would have the effect of reducing wage pressure, alleviating the shortage of labour, and diminishing inflationary pressure in the economy. This depends on what happens with respect to the virus.  


Deloitte Global Economist Network


The Deloitte Global Economist Network is a diverse group of economists that produce relevant, interesting and thought-provoking content for external and internal audiences. The Network’s industry and economics expertise allows us to bring sophisticated analysis to complex industry-based questions. Publications range from in-depth reports and thought leadership examining critical issues to executive briefs aimed at keeping Deloitte’s top management and partners abreast of topical issues.

Learn more

Cover image by: Sylvia Chang

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey