2022 was bad, but it could have been worse. This essay is part of a end of year series looking at the silver linings.

The first two quarters of 2022 began with negative gross domestic product growth. It looked like we were headed for a recession. The Fed had to tame inflation that was spiraling out of control, so it raised the federal funds target rate from 0.25% in March to 4.5% now. Faced with these higher interest rates, rising debt levels around the world stemming from policies to weather the pandemic placed severe constraints on fiscal policy. In the US, federal debt held by the public was $24 trillion in the third quarter of 2022, which was 95% of GDP, up from 80% before the pandemic. China’s zero covid policy continued to be a drag on global supply chains. Russia’s war against Ukraine created global anxiety and increased oil and food prices.

You could be forgiven for thinking that 2022 was a terrible year for the economy. But it could have been an absolute disaster. What saved the day was the labor market. As a result, the economic pain has been more tolerable for more people because they continue to have paychecks, and the overall economic picture at the end of the year is much less dire than many expected.

In December 2021, the unemployment rate was at 3.9%, reflecting a surprising recovery from 14.7% at the height of the pandemic, but it continued to fall to 3.7% in October. Overall, more people were employed during 2022. At the start of the pandemic, 80.5% of the population aged 25-54 was employed. That fell to 69.6% at the end of the lockdowns, but rebounded to 79% by the end of 2021 and continued to rise to 79.7% in November.

More surprising still, the economy in 2022 was especially favorable to low-wage workers. From Q3 2021 to Q3 2022, the lowest-paid workers on average saw a 9% pay increase, while the highest-paid worker saw only a 5% increase (not even enough to keep up with the 8). % inflation). This trend reversed decades of rising income inequality.

Low-wage workers benefited the most from the recovery as businesses had to compete with government assistance programs to entice workers back into the job market. It is also possible that some of the new technologies, such as digital tools to facilitate service-oriented interactions, such as using apps to pay for meals, boosted the productivity of low-skilled workers. This would be a significant reversal of the trend of IT innovation aimed at improving the productivity of highly skilled workers, such as with computers.

Superstar tech companies such as Google, Facebook, Amazon, Apple and Microsoft were also not behind the strength of the labor market in 2022. From November 2021 to November of this year, employment at companies with more than 500 employees increased only 469,000 . workers. Instead, it was half the herd that led the way. Employment at companies with 20 or more but fewer than 500 employees increased by 3,445,000 workers (although unfortunately very small companies struggled, with companies with fewer than 20 employees losing 223,000 workers from last November to this).

The real estate market also did not suffer the blows that it could have. While the strong start the housing market enjoyed in 2022 has come to an end, working from home seems to be here to stay. The consequence will be a permanent increase in the demand for housing that will keep house prices high for some time. Without this new demand, rising interest rates could have triggered a housing crash in 2022 rather than a mere slowdown.

All of which means that 2023 could also turn out better in economic terms. Housing does not seem likely to cause a recession, as it did in 2008. And a strong labor market is key to the recovery, as more people have income to spend on goods and services and there is less need to provide government services. assistance to those left behind. Adjusting to the pandemic has accelerated a wave of innovation in automation, IT and cloud computing that will trickle down to nearly every business in the economy. This should trigger a boom in productivity, especially in the service sector, which accounts for 86% of all non-farm workers. In the long term, this is the only way income will increase, although in the short term it may mean that workers will have to change jobs and acquire new skills.

With smart management of the economy (yes, a big if), we should continue to see the fruits of these changes throughout 2023.