It can be difficult now to remember what the U.S. economy looked like a year ago. The unemployment rate was 6.7%, with 10 million fewer people employed than before the pandemic. Expectations were that it could take years for the labor market to heal.

Then, the economy experienced two historic surprises. First, demand for workers came soaring back at a velocity almost never before seen. And second, despite companies going all out to hire, millions of workers either retired early or stayed on the sidelines.

These two forces collided to create the most unusual job market in living memory — and an economy afflicted not by too few jobs, but too few workers.

For those looking for employment or to change jobs, the 2021 economy has been a blessing, as companies hike wages and many workers feel empowered to quit because they can swiftly find new opportunities. But the resulting labor shortages are causing profound problems across a range of industries — from restaurants that can’t find servers to factories that can’t find people for the assembly line to hospitals that can’t find nurses.

The shortages are beginning to raise difficult questions about how much some of America’s most vital sectors can continue to rely on a relatively low-paid workforce.

In 2022, something’s got to give. Otherwise, worker shortages could become an enduring feature — or defect — of the U.S. economy.


How did the labor market get here?

The economy has seldom seen such a mismatch between so much demand for workers and so few people willing to work.

The immediate economic hit from the coronavirus pandemic was unfathomable. In April 2020 alone, nearly 21 million jobs were lost. Despite improvements throughout last year, most economists thought that progress would come slowly in 2021, as anxious, badly burned businesses reluctantly hired.

Instead, it has been a nearly unprecedented recovery.

The unemployment rate, which stood at 4.2% in November, has recovered more rapidly than at all but one point since World War II, the relatively mild recession of 1960.

“2021 was a surprise, I think, to all economists,” said Daniel Zhao, a senior economist at the employment website Glassdoor. “At the beginning of the year, we were concerned about whether we would get a strong enough recovery to get anywhere close to the labor market before the pandemic. And in some ways, we’ve passed that.”

But the desire to hire is only half the story. The problem has been on the other side of the ledger — the number of Americans who are working or looking for work, also known as the labor force.

During the heavy layoffs of 2020, vast numbers of Americans left the labor force, a common pattern during an economic downturn. But usually, as the economy bounces back, people start looking for jobs again.


This time, it hasn’t really happened. Since summer 2020, the labor force participation rate — the share of the population looking for jobs or employed — has hardly budged.

In total, there are still about 3.5 million fewer people employed than there were two years ago. But government statistics show that just over half that number of people — 1.8 million — have joined the ranks of Americans seeking a job.

Why was there such a strong recovery?

The U.S. economic recovery from the COVID pandemic was the strongest of any of the big Western economies. That is in large part thanks to the multiple rounds of government stimulus that totaled at least $5.2 trillion.

Many of these measures poured money directly into Americans’ bank accounts.

Now largely forgotten $600 stimulus checks hit bank accounts as Americans welcomed the new year. And just as that boost began to run out, the $1,400 checks from President Joe Biden’s $1.9 trillion American Rescue Plan began to arrive. That was on top of a variety of other stimulus measures, including an expanded child tax credit for families and the extension of enhanced unemployment benefits.

The Biden stimulus pushed the bank accounts of even the lowest-income Americans to unexpected heights. On average, they had more than twice as much in their savings accounts as they did when the pandemic began.


The Federal Reserve, the U.S. central bank that controls interest rates, helped, too. It held rates near zero and pumped hundreds of billions of dollars into the economy.

The twin fire hoses of cash — one from Congress, one from the Fed — sent Americans’ spending roaring back.

The vast majority of that spending went to purchasing goods, from cleaning supplies and home appliances to hamburgers and milk. The service industry, such as hotels and restaurants, saw only a modest boost in spending.

But the spending surge put pressure on the entire labor market. Manufacturers, food processors and all the infrastructure that is involved in delivering goods to stores and people’s homes, such as warehouses and truckers, suddenly had huge demand for workers. Service-sector companies, meanwhile, saw fierce new competition for labor.

Why didn’t more people want jobs?

Each month since May 2020, a special survey created by the Census Bureau, the Household Pulse Survey, has asked why people aren’t looking for work.

Initially, the answer wasn’t surprising. A large plurality of people cited layoffs and furloughs due to the pandemic. But as hiring recovered, other powerful forces emerged.


An unexpected surge in retirements, along with the continued threat of the coronavirus — which killed more Americans in 2021 than it did in 2020 — kept people from working.

More on the COVID-19 pandemic

“I think many economists and forecasters in 2021 continually predicted that, this month, people would suddenly explode back into the labor force, whether it’s because of vaccines, or the summer, or schools reopening,” Glassdoor’s Zhao said. “That just fundamentally has not happened.”

Retirements explain a large chunk of the missing workers. A Washington Post analysis found that over 1.5 million more people were retired in November 2021 than would have been expected based on pre-pandemic trends. Employment has actually declined in the last year among workers who were 55 or older at the start of the pandemic.

Younger workers — those ages 16 to 24 at the start of the pandemic — have bolstered the ranks of willing workers. But that still isn’t enough to balance out the number of older workers who have left.

Retirement isn’t the only force in the worker shortage. The Pulse survey points to other reasons — child care, a simple desire not to work — but the most powerful after retirement is also the most mysterious: “other.” Nobody knows what “other” refers to, or how long it might endure.

But it will be hard to catch up. The pool of potential workers has shrunk so much that getting back to the number of people employed before the pandemic would require unprecedented success in connecting job seekers and employers.

Assuming more people don’t start looking for work, it would require an unemployment rate of 2%, lower than at any point since measurement began in 1948.