Is the Labor Shortage Real?

“Global Talent Shortages Reach 15-Year-High” - ManpowerGroup Employment Outlook Survey

“We hear every day from our member companies—of every size and industry, across nearly every state—that they’re facing unprecedented challenges trying to find workers to fill jobs.” - U..S. Chamber of Commerce, The America Works Report

“People actually have a lot of money, and they don't particularly feel like going back to work.” - Jamie Dimon, CEO JP Morgan Chase

With headlines and quotes like these, you would be forgiven if you thought that the U.S. jobs market was roaring, and wages were skyrocketing. While the labor market is improving, there were 559,000 jobs created in May and the disappointing April number was revised from the initially-reported 266,000 jobs to just 278,000, which means that there are still about 7.6 million fewer jobs that exist today than there were in February 2020, before the pandemic recession began, the facts beg the question: With millions out of work, is there a labor shortage?

There are a number of reasons that are contributing to the employment squeeze. The Federal Reserve’s Survey of Household Economics and Decisionmaking report found that about one in five of the people who are not working or working less, are doing so because of disruptions to childcare or in-person schooling. Many of these folks have been able to remain on the sidelines and take care of their kids because they are receiving enhanced unemployment benefits of $300 per week until September 6th, just one of the benefits of the American Rescue Plan.

Republican Senator Ron Johnson of Wisconsin has been critical of the extra money, musing to Business Insider, “What has happened in our society, where a paycheck isn't enough incentive to go to work?” His implication seems to be that low-wage earners, many of whom suffered the deepest blows amid the pandemic, are a bunch of lazy couch surfers, happy to live off the largess of Uncle Sam. In fact, these people are making a rational economic decision: it is far better to remain safe and collect more money in the process, then to be at risk for lower wages.

The issue may soon be resolved, as two dozen states are set to end their participation in the government’s extended unemployment program, the rest will see the money wind down over the next 90 days. At that time, there should be a steady flow of participants into the labor force. When those people start to pound the pavement, some may ditch their previous jobs in industries like restaurant and hospitality, which often provided low wages and scant benefits, and apply for warehouse positions at places like Amazon, Target, and Walmart, which are paying up to fill vacancies.

It’s not just at the lower wage levels where businesses say are having problems finding workers. Seventy percent of firms surveyed by ManpowerGroup are reporting difficulties hiring skilled workers causing global talent shortages to “reach a 15-year-high”. Diane Swonk, Chief Economist at Grant Thornton thinks part of the problem is the huge number of older workers who called it quits. “Retirements, which accelerated during the pandemic, are the primary challenge. Employers will need to cast their nets more widely and abandon ageism to bring back older workers who left the labor market during the pandemic.”

Economist Joel Naroff put it more bluntly: “There isn’t a labor shortage. The suppliers of labor (workers) are reacting to the level of wages, while those demanding workers (firms) are not raising wages enough to induce workers to work for them. Firms will likely have to either raise their wage offers or continue to complain about a lack of workers.”

As Heidi Shierholz, senior economist and director of policy at the left leaning Economic Policy Institute, wrote, “I often suggest that whenever anyone says, I can’t find the workers I need,” she should really add, “at the wages I want to pay.’”