Home / Economy / Tight US labor market has kept lid on layoffs

A tight U.S. labor market has kept applications for unemployment benefits close to record lows for the past two months, while workers calling in sick because of the Omicron variant of Covid-19 have increased pressure on employers.

Economists surveyed by The Wall Street Journal estimate that initial jobless claims, a proxy for layoffs, fell slightly to 200,000 for the week ended Jan. 8, from 207,000 the prior week. Initial claims and their four-week moving average—which smooths out volatility in the weekly figures—have in recent weeks continued to hover near their lowest levels since 1969.

Continuing claims, which provide an approximation of the number of people receiving benefits, have also dropped to levels last seen ahead of the pandemic.

The Omicron variant has pushed Covid-19 cases and hospitalizations in the U.S. to record highs, with economists predicting the wave is likely to cause a short-term slowing of economic growth.

People staying out of work because they are sick or fear getting sick has disrupted air travel, entertainment and other sectors of the economy while causing schools to temporarily move to remote learning.

“We are talking about absenteeism to a level where some businesses might not be able to operate—if you want to call absenteeism the new lockdown," said Rubeela Farooqi, chief U.S. economist of High Frequency Economics.

Absenteeism—employees missing work unexpectedly—caused by Covid-19 is a particular challenge for smaller businesses that might not be able to afford the missed shifts, Ms. Farooqi said. It could also potentially lead to the risk of layoffs at those smaller firms, she added.

“If you look at your corner pizza store that has already struggled with capacity constraints during Omicron, that is where the risk lies," Ms. Farooqi said.

Ms. Farooqi said the pandemic’s impact on the overall economy has evolved over time, with the effect easing with each wave of cases. That is because businesses are striving to remain in operation despite the pandemic’s continued challenges, Ms. Farooqi said.

Tracy Wallace, owner of Peacock Wine Bar in Gilbert, Ariz., said she still doesn’t know what times her business will be busy since reopening in September 2020. She said her only choice during the pandemic’s surges has been to keep her business open as much as possible.

“I’ve had to quit watching and thinking about it because it was giving me a lot of anxiety and I could never plan anything." Mrs. Wallace said, referring to the pandemic. “I had to just keep moving forward because otherwise I’ll just be stuck and not move anywhere."

The tight labor market has left businesses short of enough workers at a time when consumer demand has been high. Workers are staying on the sidelines of the labor market and quitting jobs at record levels, putting pressure on employers to raise wages and enhance benefits to attract workers.

Higher wages are a factor in rising inflation, which in 2021 grew at its fastest annual pace since 1982.

“Price-wage momentum has already started. Wages have to go up, otherwise you can’t keep your workers, and when you raise your wages, sooner or later you have to raise prices," said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Los Angeles.

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