Bank of America Securities’ global research team said it expects a good chunk of unemployed Americans to return to work this year.
But BofA warned that over 2 million workers could take longer to come back to the labor market — if they return at all.
“Jobs probably aren’t going to be back to pre-pandemic levels until sometime next year,” BofA U.S. economist Joseph Song told Yahoo Finance on Wednesday.
In total, BofA estimates that among the 9.7 million workers reported as unemployed, there are another 4.6 million workers that are not in the labor force due to the pandemic.
The distinction is important because the Bureau of Labor Statistics only classifies a worker as “unemployed” if they are actively searching for a job. The millions of unemployed Americans holding off on job searching through the pandemic are considered out of the labor force, and not counted as part of the headline unemployment rate.
Labor shortages may lead to higher wages
Among those out of the labor force: those unable to get a job because their skills are mismatched to the hiring needs of employers.
Pointing to a National Federation of Independent Business (NFIB) survey that details the difficulty in finding qualified workers, BofA noted that changes in the economy may keep an estimated 700,000 workers unemployed — at least until they can get re-skilled.
Also out of the labor force: an estimated 1.2 million people who retired and another 140,000 who died from COVID-19 itself.
“Our careful look at the U.S. labor market leaves us less optimistic that the labor force participation rate will return to pre-pandemic levels over the next two years,” BofA’s report reads.
Still, BofA expects more than half of the 4.6 million people who are out of the labor force to return by the end of the year, as the vaccine rollout controls the spread of the virus.
Song said the expiry of extra unemployment benefits will also likely lure the unemployed back to work soon, with higher wages being a key for some industries to bring back labor.
“If it turns out there are labor shortages in certain sectors, you’re going to see wages bid up to meet that demand and get the supply in the right areas,” Song said.
An ADP report Wednesday morning showed the private sector adding 742,000 payrolls last month. Official jobs data from the Bureau of Labor Statistics, covering the month of April, is due on Friday. Bloomberg figures estimate that the report will show 995,000 non-farm payroll additions.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.