The IMF says governments must act to increase the workforce

IMF researchers urged governments to take stronger steps to alleviate labor shortages, including measures to better control the pandemic and strengthen training programs.

While further wage increases will help ease pressure on the labor market by attracting additional workers, government policies need to amplify these market forces, the IMF said in a paper and blog post published yesterday.

Controlling the pandemic with vaccines, testing and treatments will allow more experienced, low-skilled workers in contact-intensive industries and women with young children to fully re-enter the workforce. Training programs could also help workers acquire the skills needed for fast-growing jobs or more traditional jobs facing acute shortages.

The analysis comes from a discussion note presenting policy-related analysis and research by IMF economists, but does not necessarily reflect the Fund’s views.

It was published under the auspices of Pierre-Olivier Gourinchas, who took over the position of chief economist and head of research from Gita Gopinath earlier this year when she became the second-most senior official at the institution.

Tight labor markets in countries like the US and UK lift wages for low-wage jobs the most, but have a more muted impact on headline inflation, researchers said. The tight labor market added four to six percentage points to annual nominal wage growth in low-wage industries in the US and UK from mid-2020 to late 2021.

Nevertheless, the impact on overall wage inflation over the same period was only 1.5 percentage points, partly due to the relatively small share of low-wage industries and jobs in total labor costs.

Labor markets in most advanced economies are tighter than pre-pandemic levels, with job vacancy-to-unemployment ratios above pre-pandemic levels in Australia, Canada, Luxembourg, Norway, the United Kingdom and the United States.

Japan, Germany and Sweden are the main exceptions, the IMF said.