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Economic Report: Mystery of the missing millions the only blemish on strong U.S. jobs report

The U.S. jobs report for October hit all the right notes — except for one.

Read: U.S. adds 531,000 new jobs in October as economy recovers

The big disappointment? The number of people in the labor force barely grew, leaving the rate of participation at the lowest level since the early 1970s.

Put another way, millions of people who had jobs before the pandemic still haven’t returned to work. And that doesn’t even take into account a few million more who likely would entered the labor force had there been no pandemic at all.

The result: There’s not enough workers to fill a near-record number of open jobs. If the labor shortage persists, it could slow the economic recovery and keep inflation high.

The shortage of workers has come as a big surprise to businesses, Wall Street

investors and politicians. They expected the fading pandemic, the reopening of schools and the end of extra unemployment benefits in September to draw more people back into the labor force. Rapidly rising wages was seen another sweetener.

It hasn’t happened.

In October, a paltry 104,000 people joined the labor force. A person is considered part of the labor force if they have a job or are actively seeking one.

What’s worse, the share of people 16 or older in the labor force didn’t budge. It stayed at a tepid 61.6%.

Excluding a steep drop early in the pandemic, that’s the lowest level since 1973. Nor has the rate of participation improved at all in the past year.

The reluctance of so many people to reenter the labor force is a bit of a mystery, especially after some 9 million people lost unemployment benefits in September. Economists had expected to see a pickup in labor-force participation by now.

“The most disappointing thing about [the jobs report] is that it does not really show much in terms of a return to the labor force following the expiration of the enhanced unemployment benefits in September,” said senior money market economist Thomas Simons of Jefferies LLC.

Now many are questioning the assumption that the expiry of some unemployment benefits would prompt workers to return.

Research by the Federal Reserve, for instance, suggests up to 3 million people retired during the pandemic. While many retirees often rejoin the labor force if the economy improves, fear of the coronavirus and big gains in retirement portfolios due to record stock-market increases might preclude that from happening this time around.

Read: ‘My business faces a dire shortage of workers,’ owner tells Congress

Another explanation: Massive government spending, including stimulus checks and generous unemployment benefits, have allowed more people to bide their time before returning to work. They can hold out for better job offers, the thinking goes.

Still, many economists are convinced the size of the labor force will swell in the coming months if the pandemic burns itself out and wages continue to rise. Many people, they say, will need the income

“The money won’t last forever and the U.S. is a difficult place to be voluntarily unemployed,” said chief economist Ian Shepherdson of Pantheon Macroeconomics.

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