Is the Tight Labor Market Due to Fewer Workers — or Fewer Hours Worked?

Over the past year, the Federal Reserve has rapidly increased interest rates to bring inflation under control. As a result, inflationary pressure has begun to ease, and the economy has shown signs of softening in recent months. However, the labor market remains strong — or “out of balance” according to Fed officials. Basically, demand for labor is outstripping labor supply. But why? The answer, according to my research, is not primarily that fewer people are working. It’s that those who do work are choosing to work fewer hours.