The Labor Shortage

In the beginning of the pandemic, COVID-19 had devastating effects on job security. Over March and April of 2020, 21.4 million jobs were lost, and that was just the beginning of the pandemic (Morath 2021). Unemployment benefits were boosted, but many people, particularly those who were low-income, suffered. In addition to those who lost their jobs, people in low-income service jobs faced daily health risks, and with the state of healthcare in the United States, those health risks would provide a bigger financial burden than a period of loss of income. Since the vaccine, many people have been able to get back to work and companies have started hiring again, but they have run into a new problem: there are not enough people to fill positions. There are 10 million job openings and 4.3 million less workers than before the pandemic (Mitchell 2021). So after almost two years of employment struggles, why is there a labor shortage?

The first culprit is inevitably unemployment benefits. Unemployment benefits, similar to most economic issues, have become a politicized issue, with one side arguing increasing benefits leads to lazy workers who value leisure over compensation, and the other arguing that the raise in benefits is necessary, as a majority of the unemployed genuinely cannot find jobs. In September, unemployment benefits ended, but before that there was massive spending on unemployment benefits, briefly including a $600 supplement to the benefits people received based on income (USAGov 2021). Anyone who has taken Public Economics can tell you that in theory, there is a point where increased benefits will decrease incentive to work. However, the data shows us that the unemployment benefits alone are not enough to explain the labor shortage, and there are two main pieces of evidence. The first is that for small businesses, there is no decline in employment groups with a greater increase in unemployment benefit rate (Marinescu 2021). Additionally, workers with larger expansions in benefits returned to work at similar rates as those with smaller benefits (Marinescu 2021).  We would expect those with the highest unemployment benefit rates to return to work slower and leave work more if these benefits were the reason for disincentivized workers. There were no significant findings in terms of working and unemployment benefits. The explanation boils down to the fact that COVID-19 reduced the amount of jobs available, so even if some people were disincentivized from working, there were still too many people still applying for one position, so that even if a small amount were disincentivized from working, it would have no real impact. It should be noted however that those with the highest benefit replacement rate had a significantly lower rate of applications per opening (Marinescu 2021).

So what are some other reasons that people are not going back to work? The most significant reasons in the data are childcare and retirement. 

Women and those in low-paying service industries have the highest decrease in workforce participation during COVID-19 (Mitchell 2021). When schools shut down for months and transitioned to an online environment, children needed to be supervised at home. Overwhelmingly for heterosexual couples, mothers left the workforce to take on this burden. Low-income mothers had an even more challenging situation, with the necessity to work and inability to afford childcare. Schools have different policies for return based on location and age of the children, but hopefully the return will boost women’s participation in the labor force, even if this hiatus may set them back in their careers long-term. 

For older populations, about 1.2 million more people retired than historically expected since the onset of COVID-19 (Schwartz 2021). About 55% of retirements from people below median income were involuntary, but for the top 10% of earners, 90% retired voluntarily (Schwartz 2021). People retired for health reasons and lack of opportunities. Early retirements also negatively impact the economy, as retired people spend less and draw on the already dwindling Social Security benefits earlier. As we have seen for women and those near retirement age, low income populations within groups that contribute to leaving the workforce suffer more and face more challenging situations.

These reasons make sense according to the data, but do not explain the biggest group of people with the highest decrease in workforce participation: those in low-paying service industries. Those with less education who work in hotels, restaurants, or stores are the ones most likely to have the highest unemployment benefit rate as mentioned above, and are least likely to return to work. This comes down to the quality of jobs. These jobs were not paying enough, did not provide enough benefits, and did not provide opportunities for upward mobility before the pandemic, and they certainly do not now at the tail end. The labor shortage, caused in part by unemployment benefits, childcare, retirement, and a myriad of other factors, provided the opportunity for workers to demand better wages and benefits. Historically, the greatest improvements in working conditions come from periods of labor scarcity (Autor 2021). During labor scarcity, firms face two choices: automation or increasing training (Autor 2021). Even with the threat of automation, productivity would rise and people would be pushed into jobs with more training and higher reward. The immediate concern with raising conditions and wages are that prices will go up, and while this is true, tax dollars subsidize the subsistence wage the poorest people are making, so raising wages means less tax dollars spent in that arena (Autor 2021). 

So what caused the labor shortage post-COVID-19? We cannot point to one clear reason, but childcare, retirement, and unemployment benefits motivating workers to demand better conditions are certainly significant contributions. This pandemic hit low-income people the hardest, which is seen in retirement percentages and massive layoffs in the service industry during the pandemic. While a labor shortage may be annoying to you personally, with longer lines and stores with shorter hours, its overall effects can be positive. This is a chance for the working class and lower income people to demand better compensation and benefits for their essential work. Income inequality is not an easy issue to tackle, and while it is always prevalent, it does not always get attention, as public policy to fix it is not as easy as companies changing policies to be more equitable. This is an opportunity to force companies to make at least a small change to these inequities, because for the first time workers are in a position to refuse the bare minimum. Those who suffered the most during the pandemic now have the opportunity to leverage the current labor market to demand more equitable and fair compensation. 

References

Morath, E. “How many U.S. workers have lost jobs during coronavirus pandemic? There are several ways to count.” The Wall Street Journal, June 3, 2020. https://www.wsj.com/articles/how-many-u-s-workers-have-lost-jobs-during-coronavirus-pandemic-there-are-several-ways-to-count-11591176601. 

Mitchell, J., Weber, L., & Cambon, S. C. “4.3 million workers are missing. Where did they go?” The Wall Street Journal, October 14, 2021. https://www.wsj.com/articles/labor-shortage-missing-workers-jobs-pay-raises-economy-11634224519. 

Iacurci, G. “Ending unemployment benefits had little impact on jobs and fueled $2 billion spending cut, study finds.” CNBC, August 23, 2021. https://www.cnbc.com/2021/08/23/ending-unemployment-benefits-had-little-impact-on-jobs-study-says.html. 

“Covid-19 unemployment benefits.” USAGov. https://www.usa.gov/covid-unemployment-benefits. 

Marinescu, I., Black, S., Devereux, P. J., & Majlesi, K. “Have enhanced unemployment benefits discouraged work?” Econofact, September 15, 2021. https://econofact.org/have-enhanced-unemployment-benefits-discouraged-work. 

Schwartz, N., & Marcos, C. “They didn't expect to retire early. The pandemic changed their plans.” The New York Times, July 2, 2021. https://www.nytimes.com/2021/07/02/business/economy/retire-early-pandemic-social-security.html. 

Autor, D. “Good news: There's a labor shortage.” The New York Times, September 4, 2021.https://www.nytimes.com/2021/09/04/opinion/labor-shortage-biden-covid.html.