To be sure, it has increased their fragility, especially with respect to their public finances. It is no surprise that most of the countries with the largest deficits and the largest increase in debt after the crisis have been those in which the financial sector played an increasing role, also as a source of fiscal revenue. As the financial industry becomes less profitable, and provides less tax revenue, the gap has to be filled by other sources of taxation, or lower public expenditures, which may be politically difficult to accept. These aspects may not have been fully incorporated in the projections for the adjustment of public finances in many advanced economies, unless it is expected that the financial sector will return to its pre-crisis peak, which is a risky assumption. More generally, this crisis has shown the vulnerability of public finances to volatile structures in the economy. In good times, volatile sources of income, such as those from the financial sector or the housing market, may overestimate the soundness of public finances, while the adjustment costs in the downturn may be enormous. A case in point is that of Ireland, which during the pre-crisis years was able to reduce taxes and increase expenditures for an amount of about 12% of GDP (in the period 2003–2008), thanks to the rise in revenues from the financial sector and from housing.
Northern New Jersey is above where it was in 2019. And New York City has also shown remarkable progress, with employment closing in on pre-Covid levels.1 Nationally, we are also seeing improvements on the supply side of the labor market. As you'll recall, when businesses reopened after the 2020 pandemic shutdowns, many faced a dire shortage of workers. Since then, we have seen a rebound in labor force participation, with the 25-to 54-year-old age group slightly above pre-pandemic levels. Although overall participation is below where it was before Covid, economists at the New York Fed have found that this shortfall is more than fully accounted for by the aging—or what I prefer to call "maturing"—of the workforce.2 This increase in labor force participation has helped alleviate some of the imbalance in the labor market. But with baby boomers increasingly reaching retirement age, population aging will continue to put downward pressure on participation in the medium term. Increases in the labor force from immigration, which has picked up from its pandemic lows, can partially offset this, but it is unlikely to to fully undo impact. By continuing use our site, the you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. The Force Is a Balance Achieving balance on the inflation side of our mandate has been more challenging. Last June, inflation spiked to a 40-year high of 7 percent, as measured by the personal consumption expenditures (PCE) price index.