Here’s why the South and Midwest lead labor market recoveries

·3 min read

According to a July 20 research briefing published by Oxford Economics, labor markets in the South and Midwest are leading the rest of the country in their recoveries from the pandemic, with eight of the 10 “most robust” recoveries seen in these two regions.

“Greater declines in unemployment rates, stronger wage growth, and sharper increases in job openings relative to other regions are underpinning strong labor demand dynamics in the Midwest and South,” the briefing reads.

Oxford Economics cited less restrictive labor supply constraints as being one of the main reasons for the pronounced bounce-back in states such as Iowa (eighth “least damaged” labor market in the country relative to pre-pandemic conditions as of July 2021), Kansas (seventh), Alabama (sixth), Arkansas (fifth), and South Dakota (third). Additionally, labor supply constraints are becoming less restrictive in these states as labor force participation rates are more quickly returning to pre-pandemic levels in the South and Midwest than in any other regions of the country.

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“Quicker reopenings and robust demand are underpinning faster recoveries relative to other regions,” the briefing added.

Idaho and Utah, though not belonging to either the South or Midwest regions, sit near the top in terms of states with the least damaged labor markets, occupying the second and fourth spots, respectively. Montana also demonstrated a normalized z-score of zero, making it the state with the least damaged labor market in the union. The District of Columbia was also included in the assessment, coming in at 38th.

Though the South and Midwest may be outperforming all other regions, the overall labor story across the U.S. remains one underscored by shortages and job dissatisfaction, especially in the hospitality industry. Over a third of Americans are considering quitting their jobs — the quits rate peaked in April and has remained elevated in the following months.

Bolstered unemployment benefits continue to play a part in the labor crunch, though shortages may ease following the conclusion of enhanced benefits in all states come September 6. Staffing shortages across a wide range of sectors have prompted employers to begin offering higher wages and special incentives to encourage much-needed workers to apply.

Weaker recoveries

East and West Coast states continued to demonstrate slow labor market recoveries. However, New York improved by three spots and New Jersey improved nine spots from a previous assessment to fill the 45th and 33rd positions, respectively.

“Declines in the share of businesses negatively affected by Covid and more job postings and hirings indicate that labor demand is picking up in both states,” the briefing reads. “However, modest rebounds in labor force participation signal that labor supply constraints pose headwinds.”

California also improved one spot to move to 44th position, largely due to wage growth. The briefing stated that California’s labor supply constraints are not easing quickly, however, as the Golden State is experiencing a relatively weak recovery in labor force participation.

Hawaii and Nevada are still experiencing the weakest recoveries of all states, as their unemployment rates still remain well above pre-pandemic levels and wage growth has stagnated. As the two states rely heavily on the leisure and hospitality industries, their labor markets may need longer to heal as many Hawaiians and Nevadans continue to collect unemployment benefits.

Oxford Economics also found that labor market recoveries of states with “a reliance on energy activity” — including Texas (43rd), Louisiana (42nd), and Ohio (27th) — lost momentum in comparison to a previous assessment.

“This is because energy sector activity firmed slowly in [the first half of 2021] as domestic producers cautiously ramped up oil & gas output,” the briefing reads. “However, we expect that sturdier oil and gas demand and higher commodity prices will boost the sector’s recovery moving forward.”

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV

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