THE WORKER SUPPLY BOTTLENECK / THE WALL STREET JOURNAL EDITORIAL

The Worker Supply Bottleneck

The labor market is tightening faster than the Federal Reserve expected.

By The Editorial Board 

Job applicants work on their applications at a Foxconn Industrial Internet job fair at the Racine County Workforce Development Center in Racine, Wisc., Dec. 29, 2021./ PHOTO: MARK HERTZBERG/ZUMA PRESS

The American labor market these days is one of the strangest in memory. 

Job growth in December was disappointing for the second month in a row, but the jobless rate fell to 3.9% and everyone who wants a job can get one—or two if you’re up for it.

The overall report was better than the topline job growth of 199,000 for the month. 

Revisions added 141,000 jobs in October and November, while the labor force grew by 168,000. 

The labor participation rate was flat but the employment rate fell all the way to 3.2% for white Americans. 

The oddity in the report is that the jobless rate popped up for black Americans to 7.1%, after falling to 6.5% in November, but this data tends to be volatile in any single month.

What’s undeniable is that the labor market is remarkably tight. 

The Federal Reserve forecast last month that the unemployment rate wouldn’t hit 3.5% until the end of this year. 

Employers are paying a lot more for the privilege of keeping workers, or attracting the few who are still looking for work.

Average hourly earnings for private workers have risen 4.7% over the last 12 months, and at a nearly 6% annual rate in the last six months. 

This is good news for workers, and it means wages are at least trying to keep pace with inflation.

But it adds to the complications for the Fed as it considers how fast to speed up its bond taper and when to begin raising interest rates. 

The beginnings of a wage-price spiral are evident, which is hard to wring out of an economy once it sets in. 

This is the problem with letting inflation run hot.

The Fed’s 2021 policy blunder looks worse all the time, and Chairman Jerome Powell deserves to be roasted for it next week when he appears before the Senate for his confirmation hearing for a second term. 

Our guess is that Mr. Powell will sound like a born-again inflation hawk, but his four-year record inspires little confidence in his fortitude.

Meanwhile, the labor shortage continues to be a significant constraint on the supply side of the economy. 

It is limiting how fast companies can grow. 

The economy continues to expand, and there’s no sign of recession, but the shame is that growth could be so much healthier if policy makers hadn’t piled on the spending to goose demand while ignoring the supply-side incentives to work and produce.