Inflation is by far the biggest economic problem facing the U.S. economy.Although job growth is historically fast and investigation evidence In a sign that workers believe now is the best time in years to find a good job, soaring inflation has prevented the strength of the labor market from translating into higher wages and incomes for most households. The best-known tool to curb inflation — higher interest rates designed by the Federal Reserve — can be costly if it leads to higher unemployment and a weaker labor market.

Given all of this, policymakers should look for any tool that can help contain inflationary pressures without causing significant collateral damage. One such tool could be investment in childcare and eldercare. By subsidizing households’ use of childcare and aged care services and providing direct investments to providers, such investments can increase future labor supply, enabling working-age parents and children looking for paid employment to do so, while maintaining the members’ confidence. receive care. Moreover, these investments can help contain inflationary pressures that could theoretically be caused by rising wages even before they fully take effect.

To understand why, one has to recognize that labor market developments will likely determine how easy (or difficult) is the reduction in inflationary pressures over the next year or so.Inflation surge starting in 2021 has not start In the labor market – it starts with commodity and in Supply chain chaos Durable goods industry with rising wages actually slower higher than in other sectors of the economy. But looking ahead, whether the Fed needs to start using more powerful drugs (with devastating side effects) to slow inflation depends on what happens in the labor market.Specifically, it depends on whether the initial inflation shock will lead to Unsustainably large wage increases This pushed up inflation further, leading to the typical wage price spiral of the 1970s.

Wage growth figures released last week monthly work report Slightly encouraging in this regard.Although a Job growth is booming Wages actually rise as economy continues to rebuild from pandemic shock slowed down a bit, an annualized growth rate of 5.0% in March, compared with 5.6% last year.Given the 7-8% inflation rate in recent months, this means that wage growth is actually dampingrather than amplifying other sources of price pressure.

But whether the labor market will continue to hold inflation in check is a key uncertainty next year. A key determinant of wage pressures during that time will be how quickly the labor supply rebounds from the pandemic decline.Relative to the months before the pandemic, overall labor force participation rate dropped a full percentage point (which means about 2.5 million potential workers), and even labor force participation Workers 25-54 It’s down by half a percentage point (indicating that it’s not just demographic changes that are pulling down the overall rate). If this missing part of the workforce returns relatively quickly over the next year, it could go a long way to alleviating concerns that the labor market is too tight, leading to a wage-price spiral.

in view of The importance of expectations In most mainstream models used to forecast inflation, given the importance of wage growth to headline price inflation, changing expectations for the U.S. labor supply (eg, one year from now) could be a useful policy to control inflationary pressures lever.

The Fed has the most control over inflation expectations, whether through words or actions.However, there is progress fiscal Policies that can boost labor supply expectations.this basic The effects of these policies—such as child care and retirement investments—provide American families with more choice and a better life, but the added effect of raising expectations for labor supply growth means now is a good time to implement them.

Evidence of such investment in care Promote labor supply (mostly women) very solid over time. Of course, even if such a program were to pass today, it would take a while for the investment to fully come online – childcare centers would have to be opened or expanded, and additional workers would have to be hired to provide the services. Given this lag, some believe they may not provide much relief from inflation today. but, today’s Inflation is not really a problem. all The macroeconomic debate over what the Fed should do depends on what is expected to play out for the rest of 2022 and 2023.

If the consensus is that the Fed can keep rates steady and unemployment low, and we see continued inflation deceleration throughout the year, no one would be calling for a sharp and rapid rate hike today. The rationale for sharp and rapid rate hikes is to suggest inflation will be drawn in, changing expectations for wages and prices in the next 3, 6 or 12 months as workers and employers determine prices for wages and businesses. If those expectations include an increasing influx of new freelance workers as health care investments progress, this could reduce the amount of work we need to fight inflation by slowing spending.

The better news about what could be a dramatic shift in labor supply expectations is that integrated care investments could lead us to Exceed Labor supply before the pandemic.U.S. female labor supply severe lag Many of our wealthy industrial counterparts. Much of this lag performance may be due to underinvestment in progressive household policies in the United States.

There are few options for controlling inflation and changing future expectations without some serious negative consequences. But investing in care is an exception. Will they revolutionize the inflation game in the next 12 months? Maybe not, but they can help a lot. Even if they don’t do miracles with inflation control policies, that’s not their main job. They will play a role in making the lives of American families better and more manageable, which in itself has enormous value.