Thread by @jasonfurman

Over the next yr the labor force participation rate could rise by an astounding ~0.9 percentage point if all of the people who have left the labor force return.

The last time we've seen anything like this was 1976, 1977 & 1978.

Maybe not so comforting for inflation.

A short 🧵

The labor force participation fell sharply when COVID hit & is still far from recovered. Now 1pp below where it would have been if all the age-sex participation rates had stayed the same. This is due to a combo of ages and genders. (Discontinuity is the population controls.)

It's plausible that many of these people will come back over something like the next year if COVID becomes more manageably endemic or more ignored.

If these workers come back that will be great for incomes, employment, GDP, and much more.

But will it be great for inflation?

The case for it reducing inflation is that it increases supply. But more people working will also increase demand. It's plausible that the supply effect is somewhat more than the demand effect (because nonemployed may have been smoothing consumption) but probably not by a lot.

Historically structural labor force participation changes don't seem to affect inflation one way or the other. It's not like the big influx of workers in the late 1970s lowered inflation. Or that declining participation post-2020 raised inflation.

At the same time, IF labor force participation does rise rapidly back to normal levels over the course of 2022 I would bet the unemployment rate will also have fallen and the labor market will be even tighter than it is now, or at least not much looser.

So I would put the return of workers as another factor that might possibly reduce inflation but likely not by a lot. And I would not be surprised if it, together with what came with it, generated a small increase in inflation.