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Explainer: Where are America’s Workers?

July 12, 2021 by Brock Blasdell

As the American economic engines churn back to life, one major hurdle stands in the way of our market renaissance – labor. Businesses, especially low wage, low skill businesses, are having a difficult time finding people to work for them. 

The consequences of these shortages are seen in just about every sector of the market. Retailers and food service operations have shut down during part of the week. Others are going online only or raising wages to draw people in. A mixture of elements is working together to create an odd situation for the American labor market. 

“This is really unique, what’s going on.” Rachel Greszler, research fellow at the Heritage Foundation, said. “We still have an elevated unemployment rate at 5.8%, and yet there is a labor shortage. We have a record high number of job openings.” 

A record high number of job openings combined with high unemployment means that there are jobs available — but people aren’t filling them. The question of why this is happening has been at the forefront of both political and economic discussion for months now. Many on the left claim wages are too low, or that a new labor movement is beginning in a post-pandemic society. The right claims government interference through emergency funding has maligned the markets, and the American workforce, into a less productive state. 

“This is the second month in a row that we’ve had a record number, and in addition to the data that’s out there,” Greszler said. “We’re just consistently hearing from employers across the country, and even across industries… that they are just not able to find the workers that they need to fill their positions.”

Yet the real causes behind this labor issue are not so easily explained. Low wages and increased unemployment benefits do play a role but they are only two pieces in a larger puzzle. America is a nation in economic transition. Like many other nations in the world, its economy is both groaning under the weight of a system pushed to the brink by COVID-19, and breathing in new life and new markets in areas cleared away by the blaze. 

“We’ve seen a real rise in certain types of businesses, and this was accelerated by COVID, but not really because of COVID,” Scott Lincicome, senior fellow of economic studies at the CATO Institute, said. “These are things like Ecommerce and warehousing. These companies boomed during the pandemic, and they are still booming. They are able to pay more, and they are simply outbidding a lot of small businesses in different sectors.”

The mom-and-pop grocery store, the local fast-food joint, the neighborhood Walmart, they are all being outbid by new industries looking to hire, train and pay more for the unskilled workforce. This is a competition that was already occurring long before any emergency funding or increased unemployment benefits were doled out in response to COVID-19. 

Moreover, America’s labor force has been, for over a decade now, ageing.

“Retirements, I believe, are an issue. It really seems from the data that a pretty big chunk of people in their late 50’s and early 60’s who had kind of built up a nest egg and were on their way into retirement just said, to heck with this. I’m out,” Lincicome said. “As employers are looking for workers, you know you are taking out a million workers or so who used to do that work, due to retirement.”

In addition to age, the American worker has been struck with a change in psychology since COVID-19. Many have spent considerable time at home over the past year. They have been given time to pursue their own interests and come to new outlooks on life. Others, impacted more by danger than leisure, are unwilling to return to the workplace unless their safety can be guaranteed. 

Federal influence has undoubtedly played its part in creating the situation. Emergency relief funding distributed amid the pandemic has given people more funds to wait for a better job. More accessible and higher paying unemployment benefits are competing in a very real way with businesses trying to hire. And businesses, desperate to stay open more than a year after many states passed restrictions, have been faced with the option of either raising wages to meet this new artificial competition, which can in some states be as high as $18 an hour, or dropping out entirely to await a time with less market disturbance. 

“The caveat to this is that it’s temporary,” Lincicome said. “This is not like Joe Biden and the Democrats in Congress were elected to run this top-down labor movement. Instead, they had a pandemic, and the policy that was put in place was emergency funds. It is to get us out of the emergency. And so, it’s not a movement at all, it’s emergency spending that is making its way through the system.” 

This is a point where many experts will disagree. 

“Unemployment benefits provide workers with a foundation to make labor market decisions and career choices that allow them to share in the gains of economic growth,” Kate Bahn, director of Labor Market Policy and interim chief economist at the Washington Center for Equitable Growth, said. “Coercing workers back to low quality jobs through desperation in the cutting of unemployment benefits does not create the foundation for a robust recovery.” 

The natural increase in wages is at the forefront of these expert opinions. Nobody disagrees with the idea that wages are supposed to rise with markets naturally, but the idea that the federal government can, in effect, artificially promote wage growth and compete with business to create a more favorable outcome for workers is a new arena of discussion. 

This battle, in many ways brought on by a mixture of natural disaster, government relief and market forces, is just one of many ways our economy is experiencing larger changes. The nation is questioning what it will look like in the coming years, and the many lives that are altered between now and that destination will only be revealed with time.

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