Cities and towns are opening back up after their coronavirus-induced shutdowns. Job vacancies have surged to historic highs. Millions of Americans report that they are looking for work. Yet employers are struggling to fill available positions, leaving them with no option but to shorten their business’s hours of operation and pay overtime. Payroll growth has proved lackluster.
The familiar story about what’s happening goes like this: America is in the midst of a labor shortage. Businesses are unable to find enough workers, in no small part because of the country’s generous unemployment-insurance payments and repeated stimulus checks. This is a nightmare for growing companies, a trend that’s slowing the economic recovery, and a problem that policy must solve. Workers are “dampening what should be a stronger jobs market,” the Chamber of Commerce said, calling the situation a “very real threat” to the recovery. In response, 23 states and counting have slashed unemployment-insurance payments.
But what has rapidly become conventional wisdom is not necessarily wisdom at all. The labor shortage, so far as it exists, seems to have many complicated causes. Even if benefits are among them, policy makers should not rush in to help ensure a flood of low-wage workers for America’s businesses. As the pandemic abates and the economy strengthens, why not focus on creating good ones?
The evidence of a labor shortage comes both from hard numbers and from soft anecdotes. In terms of the hard numbers: Lots of Americans want work. Roughly 10 million Americans are looking for a job, and the unemployment rate is an uncomfortably high 6.1 percent. At the same time, lots of businesses want to hire. Employers report that they have 8.1 million positions open, the largest number in recorded history. Yet the number of Americans taking a job remains subdued: Payrolls grew by just 266,000 in April, when many economists expected a number as high as 2 million.
In terms of the softer stuff: More and more business owners are complaining, loudly, that they cannot find people to work. Restaurants are offering hiring bonuses to try to get potential workers in the door, Uber and Lyft are desperate for drivers, and Costco, McDonald’s, Sheetz, and Chipotle, along with many small businesses, have raised wages to attract employees.
The issue, many business executives and politicians claim, is that the country’s social-insurance and anti-poverty programs are providing more of a hammock than a safety net: Many workers are getting a $300-a-week bonus on top of their regular state UI payments, and are still flush from the rounds of stimulus checks sent out during the pandemic. Workers would rather stay home and collect the dole than go out and take a job, the argument goes. “Continuing these programs only worsens the workforce issues we are currently facing,” Missouri Governor Mike Parson said at a press conference, announcing a cut to the state’s UI payments. “It is time we ended these programs that have incentivized people to stay out of the workforce.”
But surveys of workers—and the simple observation of the strange and still-awful reality we find ourselves in—indicate many reasons why workers are hesitant or unable to take new gigs. The pandemic is abating, but it is not over. Many workers have preexisting medical conditions or a sick family member to worry about, meaning they cannot take a frontline, essential job. Millions of parents are still struggling with the closure of child-care centers and schools. More personal, less easily quantified impulses are at play too: After a year of immense personal and collective trauma, many people just want to take a beat before committing to a new job.
Wages are another pivotal factor. Workers used to making $21 an hour are unlikely to take jobs for $17 an hour—nor would doing so be good for the American economy. Workers used to making $17 an hour are unlikely to take a much more dangerous job for the same amount—nor would doing so be good for the American economy. And workers used to making $15 an hour, who now have a reasonable expectation that more $21-an-hour jobs will be available in a few weeks, are unlikely to take a job for $15 an hour—nor would doing so be good for the American economy.
Yet many employers are dragging their feet in raising wages to make their job offerings worth taking, given the economic climate and the risks of service work. Much of the “wage growth” evident in recent statistics is due to high-wage workers being much less likely to have lost their jobs than low-wage workers; once you account for that fact, wages have not risen much at all. This is part of what accounts for the “labor shortage.” The issue isn’t workers. It’s employers.
The country’s generous UI is likely playing a role too. In a recent survey by ZipRecruiter, job seekers reported feeling far less financial pressure to take the first job they were offered, likely because UI and stimulus checks buoyed family finances. But a large body of research has shown that UI has a more moderate effect on job-acceptance rates than one might think, because it offers only the lowest-paid workers more incentive to say no.
Moreover, UI helping drive wages up by giving workers the option of saying no to a bad job is not a bad thing. Ample UI improves what is sometimes called “job match,” because it gives job seekers the ability to wait for the right position to come along. It also has disproportionate benefits for Black and Latino workers, who have borne a disproportionate burden of both the health crisis and the economic crisis of the past year.
A more philosophical point needs to be made here, too: The job of the government is not to ensure a supply of workers at whatever wage rates businesses set. And workers’ having the power to say no is not a policy problem that the government needs to solve. For decades, though, Washington and America’s statehouses have helped rig the country’s policy infrastructure in employers’ favor.
The federal government has set the country’s wage floor below its poverty line, for instance, and has not increased the minimum wage to account for improvements in productivity and output over time. The current federal minimum is just $7.25 an hour, compared with roughly $10 an hour in Ireland and Canada, $11 in the Netherlands, $12 in France and Germany, and $12.50 in Australia and Luxembourg. Indeed, the United States has the lowest minimum wage compared with typical or average wages of any country in the Organization for Economic Cooperation and Development. That helps explain why the United States has the highest share of low-wage work among the OECD countries. Fully one-quarter of American workers earn less than two-thirds of the median wage, compared with just 5 percent in Belgium and 12 percent in Japan.
The government has also proved complicit in the collapse of unionization and collective bargaining, making it easy for businesses to beat back organizing efforts and difficult for workers to band together to demand raises, benefits, and safe working conditions. The country has half, one-fifth, one-ninth of the collective-bargaining coverage of many of our peer countries. This has increased inequality in America, holding down wages while bolstering corporate profits.
At the same time, the government has declined to make companies compete against one another—for customers or for workers. Corporate concentration has increased, and any number of industries are dominated by just a handful of giant players. This pushes up profits and decimates wages, particularly in areas with fewer employers.
In recent decades, the government has also decided to allow the unfettered proliferation of Uber-type jobs, sacrificing the needs of low-wage workers in order to satisfy the preferences of wealthy, urban consumers and calling it all “innovation.” The central “innovation” of the gig economy is to call employees “contractors,” to avoid giving them benefits and a stable salary.
Even the American safety net exists not to eliminate poverty so much as to use poverty as a cudgel to force individuals into low-wage work. The earned-income tax credit goes only to people with earned income; food stamps and welfare benefits require a job-search effort. Over time, UI has become in some ways more and more like welfare; many states have made benefits shorter in term and stingier in size.
The government has long encouraged low-wage jobs and forced people into them. This is what we are seeing when governors rush to slash UI at the first sign of a real recovery and when policy makers describe workers’ demands as a “drag” on the economy. Uncle Sam is acting in the interests of low-wage employers, not the economy as a whole.
Perhaps the status quo is changing. The Biden administration has pushed a new New Deal designed to end poverty and provide greater economic security to the 99 percent. It is arguing that bolstered, extended UI should be kept in place for the benefit of American families. It is also promising to be the most pro-union government in decades. Part of this push must be giving workers the power to say no to employers—and putting employers in the uncomfortable position of having to compete for workers.
Maybe a labor shortage is a good thing.