Rich-world labour markets will remain strong in 2024

AFTER THE lifting of lockdowns in 2021, rich-world labour markets roared back to life faster than anyone had expected. In 2022 and 2023 they continued to strengthen, breaking records in the process. The economic outlook for 2024 is uncertain: will the post-pandemic expansion come to an end? Even if the world falls into recession, though, expect labour markets to remain strong. Finding a job will rarely have been so easy.

The unemployment rate across the rich world, at less than 5%, is at historical lows. For a broader measure of labour-market health, consider the share of people aged 16-64 who are actually in a job. This “working-age employment rate” is at an all-time high in around half of OECD countries. Even in countries synonymous with high unemployment, such as Italy and Portugal, employment rates are smashing records. Labour markets, to a greater extent than at almost any time in recent economic history, are delivering for workers, especially those on low incomes and with poor skills.

This strength confuses many economists. Wasn’t there supposed to be a “jobspocalypse”, with positions eliminated by the millions, as companies deployed artificial intelligence and robots? In fact the latest research finds that in many cases the opposite could be happening. Companies that adopt technology often end up hiring more workers, not firing them—possibly because they are able to grab more market share and, therefore, need more people to service orders. One recent paper looks at Japanese manufacturing between 1978 and 2017, and finds that an increase of one robot per 1,000 workers boosts firms’ employment by 2.2%.

Three structural factors set the scene for this jobs boom. The first relates to demographics. Rich-world populations are ageing rapidly. Older people are, on average, less likely to be registered as unemployed than younger folk, in part because they are more skilled. They may also feel more shame at being out of work. The second factor is policy. In recent decades governments have cut out-of-work benefits, in some cases to the bone. The returns on finding a job are therefore relatively higher. And third, technological improvements—including platforms such as Indeed and LinkedIn—have made it easier for people to find work that is right for them.

Thus primed, labour markets were able to deliver huge numbers of new jobs from 2021 to 2023. Consumers, flush with government stimulus payments and accumulated savings, and looking to make up for lost time, splurged on labour-intensive services such as hotels, restaurants and entertainment. Total demand for labour across the rich world quickly outpaced the available supply of workers, showing up in a surge of unfilled vacancies—and howls from employers about a labour shortage. Wage growth across the rich world has for months hovered at almost 5%, year on year.

With demand and supply still so out of whack, it would probably take a deep recession to truly damage jobs markets. Demand for labour has ebbed in recent months, but so far this has largely resulted in a decline in vacancies rather than a fall in employment. In Australia vacancies on Indeed have fallen from their peak by over 20%. Yet the working-age employment rate keeps rising to new record levels. Vacancies still have a long way to fall before reaching a historically normal level. In the average rich country for which there are data, there are still about a third more unfilled positions than before the pandemic.

There is another reason to expect continued labour-market strength. During the depths of the lockdowns many companies let workers go, only to struggle to rehire them when the economy opened up again. Bosses do not want to make the same mistake twice. So, assuming any recession is fairly mild, they may be inclined to hoard workers, even if they cannot really afford it.

This theory of “labour hoarding” is consistent with the data, which show that unemployment across the rich world is even lower than expected given the current rate of GDP growth. In 2023 some rich countries, including Germany and New Zealand, actually fell into brief, shallow recessions. Is there any sign that the labour market has cracked? Hardly.

Firms will have another reason to keep workers if they can. As baby-boomers retire, the available pool of labour is shrinking fast. Someone willing and able to work is an increasingly prized commodity, meaning the labour shortage could, over time, turn from a temporary phenomenon to a permanent one. Whatever happens in 2024, the world of ultra-hot labour markets is likely to endure. ■

Callum Williams, Senior economics writer, The Economist, San Francisco