The strangeness of this peculiar economic climate is not limited to persistently high inflation, which does not decrease despite rising interest rates, but also extends to the labor market. Although the cost of borrowing is rising and economic growth is slowing, unemployment in most developed countries remains low and the need for staff is still high. The well-known mismatch between the demand for skilled workers and the supply of the unemployed continues to prop up wages as central banks try to rein in demand to curb inflation.

In 38 OECD countries, unemployment was 4.9% in August, and in 80% of these countries it was at or below the same level as before the pandemic. In the US, unemployment is 3.5%, the lowest in 50 years. The need for business personnel remains high: for every unemployed American, there are 1.7 vacancies. In addition, end-October data showed that labor costs in the world’s largest economy continue to rise due to persistently high inflation, and the Federal Reserve is expected to continue aggressively raising interest rates. According to S&P Global, employment in manufacturing and services around the world has increased every month for the past two years until September.

At the same time, unemployment in the Eurozone is at its lowest level since the advent of the euro, while even in large industrialized countries such as Australia, Canada and South Korea, labor demand remains strong despite rising interest rates. However, in Britain, the unemployment rate, which is the lowest since 1974, is associated with the biggest labor market participation problem, with at least 300,000 fewer people employed compared to pre-pandemic levels. A case in point is Heathrow Airport, which announced it needed to hire 25,000 people.

In the US, it is at 3.5%, in the Eurozone at the lowest level since the birth of the euro.

In the meantime, when and if job creation starts to slow will determine when central banks can slow or even stop raising interest rates. As long as, on the contrary, hiring increases, central banks will not decide to stop this transition to restrictive monetary policy. At best, inflation will fall, but the rise in unemployment will be moderate. This is something the Fed is looking forward to as it estimates that unemployment will start rising next year, reaching 4.4%, after which it will stabilize. However, it is doubtful whether central banks can curb inflation without raising unemployment and avoiding a recession. Such a smooth landing of the economy is rare. In 1994-95, then Fed Chairman Alan Greenspan doubled dollar interest rates to 6% and managed to slow economic growth without triggering a spike in unemployment. But during the hyperinflationary periods of the 1970s and 1980s, the Fed’s move to restrictive policies caused unemployment to rise to 9% in 1975 and 10.8% in 1982. a year to reduce inflation to the target level of 2%.