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Demetrius Freeman

Brian Deese, an Innovation Fellow at MIT, was director of the National Economic Council from 2021 to 2023.

A recent string of economic data has underscored the resilience of America’s post-pandemic economic recovery. So far this year, inflation has come down, real wages have gone up, income inequality has declined, and we have the best job market for workers in decades. While it is by no means guaranteed, a soft landing is now clearly in sight.

This progress caught many economic forecasters by surprise. Last fall, <a href="https://www.bloomberg.com/news/articles/2022-10-17/forecast-for-us-recession-within-year-hits-100-in-blow-to-biden#:~:text=The%20latest%20recession%20probability%20models,period%20in%20the%20previous%20update" target=_blank>the Bloomberg consensus</a> indicated a 100 percent chance of a recession in the following 12 months. <a href="https://www.wsj.com/articles/economists-now-expect-a-recession-job-losses-by-next-year-11665859869?st=dr7lteyyed8tmob&reflink=desktopwebshare_permalink" target=_blank>The Wall Street Journal’s survey of professional forecasters</a> put the same recession probability at 63 percent.

Two years ago, many hypothesized that covid-19 and the fiscal policy response to the pandemic would push millions of Americans permanently out of the workforce. Instead, this recovery has been marked by the fastest rebound in labor force participation — the share of the population that is working or looking for work — in 50 years. After two decades of decline and a sharp drop at the height of the pandemic, prime-age labor-force participation has rebounded to its highest level since 2002.

The trend is continuing. Last month, <a href="https://www.bls.gov/news.release/empsit.a.htm" target=_blank>more than 700,000</a> workers entered the labor force, increasing both the number of people employed and the number of people seeking jobs.

This rebound is historically unique, by the way. The chart below compares the prime-age labor-force participation of the past three recoveries. The rebound in labor force participation in the current economic recovery has been far faster than after other recent recessions. The current rate of growth is twice as fast as that of the 1980s.

An increasing supply of workers plays an important role in widening the runway for a soft landing by allowing the job market to normalize without a pronounced jump in unemployment or a steep decline in wage growth. Today we have the highest share of working-age people employed in more than 20 years, and inflation-adjusted wages are higher than before the pandemic.

This is good news for American workers and our economy. But it is not the end of the recovery story. We need to continue this historic progress on expanding the labor supply to facilitate a soft landing in the near term and to increase our economy’s potential in the long term.

Rather than declaring victory or simply admiring the challenge of filling jobs in this strong labor market, policymakers at the federal, state and local levels should work aggressively on an agenda to get even more people to work. While there is no silver bullet to increase labor supply, a number of smart policies can move the needle. Such policies also blur traditional partisan lines, offering an opportunity for productive collaboration across the political spectrum. And at a moment when many economic sectors need more trained workers, businesses can and should be an active partner in advancing these policies.

First, policymakers at all levels should prioritize place-based investments in communities that have suffered from disinvestment.

One of the key drivers of weak labor-force participation is low labor demand. This makes sense: When good job opportunities dry up in a community, it breeds frustration, and fewer people look for work. <a href="https://pubs.aeaweb.org/doi/pdfplus/10.1257/jel.20191480" target=_blank>Research by economists Katharine Abraham and Melissa Kearney</a> found that labor demand was the most important explanatory factor behind the decline in labor force participation over the past two decades, particularly among men.

But when these communities see new, promising job opportunities, workers come off the sidelines. Over the past two years, 83 percent of <a href="http://cleaninvestmentmonitor.org/" target=_blank>announced clean energy investments</a> have been in counties with household incomes below the national median. A <a href="https://home.treasury.gov/news/featured-stories/the-inflation-reduction-act-and-us-business-investment" target=_blank>similar trend </a>is unfolding from investments spurred by the bipartisan infrastructure law and the Chips and Science Act. This is significant because, typically, private fixed investment skews more toward population-dense and higher-income counties. We can build on this progress by focusing place-based investments in areas where the <a href="https://www.aeaweb.org/articles?id=10.1257/jep.34.3.99" target=_blank>economic and labor market returns</a> are the highest.

Second, we should help more parents work.

Notwithstanding the extraordinary challenges that the pandemic imposed on parents, women have been the driving force behind the recent labor market rebound. Prime-working-age women have been <a href="https://www.hamiltonproject.org/publication/post/prime-age-women-are-going-above-and-beyond-in-the-labor-market-recovery/?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_axiosmarkets&amp;stream=business" target="_blank">the largest contributor</a> to labor-force participation growth since the pandemic, controlling for other factors. The strongest growth has been among mothers with children under 5 (up about 1.5 percentage points over its pre-pandemic peak).

This progress is historic. It’s also at risk. Quality child care is already hard to come by, and at the end of this month, temporary federal support for child care that was passed in 2021 will expire, affecting<a href="https://www.washingtonpost.com/business/2023/09/05/child-care-cliff-day-care/" target=_blank> 70,000 child-care programs that support 3.2 million</a> children. In five states — Arkansas, Montana, Utah, Virginia and West Virginia — and D.C., the number of licensed programs could be cut by at least half, according to <a href="https://tcf.org/content/report/child-care-cliff/" target=_blank>the Century Foundation</a>. This could force millions of parents to leave jobs or reduce hours to care for their kids.

Congress should act not only to stem this cliff but also to help more families access and afford quality child care. The now-expired 2021 expansion of a refundable child tax credit lifted almost 3 million children out of poverty and helped families manage caregiving expenses. Policymakers considering expiring tax credits at the end of the year should prioritize expanding the child tax credit for the lowest-income families, where there is bipartisan support.

In addition, employers focused on return-to-work policies should carefully consider the positive implications of workplace flexibility, which has <a href="https://www.hamiltonproject.org/publication/post/prime-age-women-are-going-above-and-beyond-in-the-labor-market-recovery/?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_axiosmarkets&amp;stream=business" target="_blank">propelled the surge in women’s workforce participation</a>. Flexibility has also been essential in enabling work for other groups, such as people with disabilities, who today are participating in the labor force at their <a href="https://www.shrm.org/resourcesandtools/hr-topics/behavioral-competencies/global-and-cultural-effectiveness/pages/employment-rate-rising-for-people-with-disabilities.aspx#:~:text=In%202022%2C%20about%2021%20percent,tracking%20this%20statistic%20in%202008." target="_blank">highest levels since 2008</a>. Preserving the flexibility necessary for these groups to work effectively is key even as employers seek to encourage more in-office work.

Third, we need to make more progress on immigration.

Immigrant workers accounted for 62 percent of the growth of the overall labor force in 2022 and 81 percent of the growth thus far in 2023. While this progress has helped return immigrants’ labor force participation to pre-covid levels, we have not yet made progress in reversing the decade-long decline since the Great Recession.

Much of the recent progress has derived from last year’s <a href="https://rollcall.com/2022/09/22/record-pace-for-green-cards-wont-last-without-congressional-action/" target=_blank>record approvals of employment-based immigrant visas</a>. The Biden administration needs to sustain this progress by continuing to expedite visa processing so that we are using all the available green-card allocations that Congress has already approved. And, as hard as the politics are, Congress cannot give up on immigration reforms. Late last year, Sens. Kyrsten Sinema (I-Ariz.) and Thom Tillis (R-N.C.) proposed a sensible package of reforms to expand legal immigration by recapturing lost visas, alongside putting 2 million “dreamers” on a path to citizenship. Congress should prioritize this type of progress in the context of must-pass bills this fall.

Finally, we should make housing more affordable to help workers find homes near promising jobs.

Affordable housing could be the holy grail of America’s soft landing — it increases labor supply, reduces costs for families and lowers inflation. Of course, it takes time to build affordable housing. But the sooner we  act, even incrementally, the more that affordable housing can be a tailwind to normalizing our economy into next year and beyond. Congress should pass expansions of the low-income housing and neighborhood home tax credits — two policies with bipartisan support — as part of tax legislation this fall. And the Biden administration should evolve its pilot efforts to encourage zoning policy reforms that enable affordable housing investments with federal incentives into an all-of-government effort.

This economic recovery is defying expectations. Enabling more people to work can extend this improbable progress and lay the groundwork for long-term economic growth.

Brian Deese

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