You have no doubt seen the scary headlines warning of a “labor shortage” caused by the additional pandemic unemployment insurance payments. The coverage of this story is widespread, even though most economics reporters can find no credible evidence linking unemployment checks to a labor shortage. EPI economist Heidi Shierholz joins us to explain why UI and stimulus payments aren’t causing a “labor shortage”, and why the answer to this made-up problem is so clear: it’s the low wages, stupid.
Heidi Shierholz is the Senior Economist and Director of Policy at the Economic Policy Institute.
Twitter: @hshierholz
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Unemployment benefits are not creating a worker shortage: https://www.huffpost.com/entry/worker-shortage-unemployment-benefits_n_609056c3e4b09cce6c21a850
Is unemployment insurance behind the fast-food labor shortage? https://prospect.org/labor/is-unemployment-insurance-behind-fast-food-labor-shortage/
Restaurant labor shortages show little sign of going economywide: https://www.epi.org/blog/restaurant-labor-shortages-show-little-sign-of-going-economywide-policymakers-must-not-rein-in-stimulus-or-unemployment-benefits/
U.S. Labor Shortage? Unlikely. Here’s why: https://policydialogue.org/opinions/worker-shortages/
It’s not a ‘labor shortage’. It’s a great reassessment of work in America: https://www.washingtonpost.com/business/2021/05/07/jobs-report-labor-shortage-analysis/
The Myth of Labor Shortages: https://www.nytimes.com/2021/05/20/briefing/labor-shortages-covid-wages.html
Website: https://pitchforkeconomics.com/
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Nick’s twitter: @NickHanauer
Nick Hanauer:
There’s always, in the background, employers complaining about not being able to find the workers they want but it’s particularly loud today. No doubt, you’ve all seen the headlines recently about a so-called labor shortage.
Heidi Shierholz:
The thing that I always suggest that people say is when they hear an employer say, I can’t find the workers that I need, always add the phrase at the wage I want to pay.
Speaker 3:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
No doubt you’ve all seen the headlines recently about a so-called labor shortage striking the American economy these days. Everybody’s all lazy on unemployment or something and so nobody’s taking any jobs.
Nick Hanauer:
Yeah, absolutely. And the story is everywhere. Employers complaining about not being able to find workers and you know, Goldie, I think that there’s always in the background employers complaining about not being able to find the workers they want. But it’s particularly loud today. And there’s good reasons for it. As the economy accelerates, virtually everything is in short supply including lumber. And people are scrambling to fill the spots. You know they laid off or fired workers going into the pandemic and now everybody’s scrambling to get them back.
But the most harmful part about this narrative –
David Goldstein:
Is that it’s not true?
Nick Hanauer:
Is it the unemployment benefits that people are getting paid? Are making everyone lazy and not wanting to work. If we just kept people poorer and more desperate, everything would be better for everyone. That is the thing that’s just a kitchen [inaudible 00:02:23] out there. And it’s mostly nonsense, of course.
David Goldstein:
Yeah. The underlying message is that people aren’t suffering enough and that if only the American people suffered more, companies’ profits would be a little higher.
Nick Hanauer:
Exactly. And it would be easier for corporations to exploit people.
This narrative about people not suffering enough and therefore it being bad for businesses, super widespread. And I think it’s really important for our listeners to push back on that narrative and we have an absolutely fantastic person to help us do that today. Our old friend, senior economist and director of policy at the Economic Policy Institute, Heidi Shierholz. Heidi is absolutely one of the most expert folks in the nation on this subject and was, among other things, the top economist at the labor department under the Obama administration. And it will be great fun to chat with her. So let’s go to Heidi.
Heidi Shierholz:
My name is Heidi Shierholz. I am a senior economist. I’m a labor economist by training and the Director of Policy at the Economic Policy institute in Washington, DC.
Nick Hanauer:
So Heidi, let’s start at the very beginning and let’s just assume that our listeners haven’t been looking at the news very, very carefully over the last few weeks. Explain to us from your perch what you’ve been seeing with respect to all this talk of labor shortages in the news and businesses not being able to find workers for hire?
Heidi Shierholz:
Talk of the labor shortages is absolutely everywhere. And one thing that’s interesting is there’s sort of always a chorus of employers saying I can’t find the workers that I need. Sometimes it’s louder, sometimes it’s quieter but it’s always there. But it is incredibly loud right now. And I think one thing that is going on is that while we are not, right now, seeing widespread labor shortages, I do think that the data are indeed flashing labor shortages in very isolated sectors. So that last part is key. The narrowness of these labor shortages that we’re seeing, the tons of stories and everyone talking about labor shortages is disproportionate to what’s actually going on. But there is a little something going on in isolated sectors right.
David Goldstein:
So which sectors are most affected?
Heidi Shierholz:
You know what, it’s pretty much just leisure and hospitality. So leisure and hospitality is the sector that has restaurants in it. It’s the lowest wage major sector in our economy. And that is where we are seeing some evidence of labor shortages.
Would it be useful if I actually talk about how we identify labor shortages?
David Goldstein:
Sure.
Heidi Shierholz:
There’s no index of labor shortages that BLS puts out. You have to look at data that will point you to, is there some evidence of a labor shortage? And the key footprint of a labor shortage in the data is very fast wage growth, accelerating wage growth. And the idea behind that is really straightforward. If an employer can’t attract the workers they need, they will raise wages to poach workers from other employers who will in turn raise wages to retain their workers and on and on. So that’s the marker of a labor shortage. You see accelerating wage growth.
In recent months, wages in leisure and hospitality, they have indeed accelerated at a rate that would suggest that there has been some tightening in that sector and not at all suggesting that wages in that sector are too high. Not even close. But we have seen an acceleration in recent months.
David Goldstein:
Right. Because after decades of slow wage growth, slow or nonexistent wage growth, particularly with low-wage jobs, this is a good thing. I mean in Seattle, we saw that as great prior to the pandemic. Sure, there was a labor shortage in the restaurant and hospitality industry. They couldn’t hire enough workers because they were growing so fast and so they were pushing wages up way past our $15 minimum wage. So from the workers’ perspective, this is great, right?
Heidi Shierholz:
Yeah, this is … And as far as COVID goes, it had to happen at some point because one of the things we’ve seen over the course of the COVID pandemic is that wages in leisure and hospitality just plummeted at the start of this and stayed very, very low for the first 10 months. And so, at some point, wages had to accelerate to get back on to their pre-COVID trend. And one thing that’s true of the data right now is that even with the wage acceleration that we’ve seen in the last couple of months, wages in leisure and hospitality right now have only just regained their pre-COVID trend. So right now, they’re roughly where they would be if COVID had never happened. Not at all that wages are too high. They’re just right at what we lost.
David Goldstein:
Yeah, Heidi, can I ask you kind of a narrative question here?
Heidi Shierholz:
Mm-hmm (affirmative).
David Goldstein:
We’re talking about a labor shortage but if you’re an employer, you can’t hire enough workers because your wages are too low. And other people who’ve raised wages higher are hiring the workers. Is that a labor shortage or a wage shortage?
Heidi Shierholz:
That’s a very good point. Right. No that’s a very good point. And the thing that I always suggest that people say is when they hear an employer say, I can’t find the workers that I need, always add the phrase, at the wage I want to pay. And that’s really how to identify a labor shortage. Are we seeing employers not being able to hire workers at the wage they want to pay in the sense that they have had to increase wages to attract workers? If we know that employers really could get workers if they would raise wages, and so they’re making that choice to not raise the wages and then face a labor shortage, potentially.
So that’s a key phrase to always keep in mind. That is something that we’re seeing going on right now but it is, again, it’s not reaching any sense problematic levels. Wages have just been restored in restaurants to where they were if COVID had never happened.
Nick Hanauer:
Yeah. And so as a business person, I also do want to just underscore some of the dynamics that are going on here from the employer’s point of view that may not be completely obvious.
The challenge for employers is that when you are in need of let’s say 10% more workers to meet the demand that you face, the challenge isn’t that you’re going to have to pay that extra 10% of workers a higher wage. It’s that you’ll have to pay everyone that works for you at that new wage. And if you’ve been operating your restaurant or chain of restaurants successfully filling positions at $2.13 plus tips and now it takes $15 an hour plus tips to attract the incremental worker, you’re going to have to go back and raise all of the people that you were employing up to that new level.
Obviously, that makes it expensive when wages go up, right? Because it’s not just the incremental worker that you have to pay more. You have to pay, effectively, everyone more. And in fact, your experienced and existing workers may insist on an even higher wage than it takes for you to higher that next incremental worker, right? Because if I’ve been working for you for five years, I’ll be pretty pissed off if the new workers gets $15 and so do I, right?
Heidi Shierholz:
Yes.
Nick Hanauer:
Yeah.
Heidi Shierholz:
I totally agree and that’s a key source of the wage acceleration because then people who do have the workers would have to raise their wages to retain the workers that they have and you get that spiral. So that’s totally … That’s exactly right and that is what we’ve seen. That restaurants, right now, have not been able to hire at the extremely low wages that prevail that the worst of this recession, we’ve had to raise them back up.
Nick Hanauer:
Right. But to be clear Heidi, they are hiring, right? Aren’t the job gains disproportionately concentrated in the restaurant and hospitality industries?
Heidi Shierholz:
That is a really good point. I’m glad you brought that up because I feel like it’s been really missed. There was this, in the conversations about this, I feel like that point has been very missed.
In April, job growth was really disappointing overall. But when you look by sector, leisure and hospitality was the one sector where employment growth was what you expected. And so in April, overall, we added 266,000 jobs. But we added 331,000 jobs just in leisure and hospitality. So it was all the other sectors where you’re not seeing labor shortages, where you’re not seeing accelerating wage growth, it was all of those other sectors that saw such disappointing job changes, in April.
And that really points to the fact that okay, restaurants, other businesses in leisure and hospitality, they really did have to raise wages to attract workers. But when they did that, they were able to attract workers. They actually saw … Those labor shortages weren’t in hinging on their ability to hire workers. They raised wages and they got the workers that they needed. Employment growth was as expected in that sector. If you need more workers, you raise wages, you get more workers. That is what we are seeing right now in the leisure and hospitality industry despite all this talk that, oh no, this is really slowing things down.
Nick Hanauer:
Yeah, in fact, it’s speeding up the economy.
David Goldstein:
Yeah. Employers are upset because for the first time in 40 years, we’re actually seeing a well-functioning labor market.
Nick Hanauer:
Yeah.
David Goldstein:
They’ve been accustomed to it not functioning.
Heidi Shierholz:
Right.
David Goldstein:
To being able to exert undue power over workers to keep wages low.
Heidi Shierholz:
Yeah, well-put. We know that in normal times, our low-wage labor market is not a well-functioning labor market. It is not [inaudible 00:13:35] competitive. Employers have a ton of power to suppress wages.
There is this moment here where things are functioning better. As employers need workers, they’re having to pay more to get them. Again, I want to go back to, it’s not like the wages in this sector are unreasonably high or even as high as they should be. They’re still only where they would be roughly if COVID had never happened. But it is … It’s a positive thing that workers are at least back on that trend.
Nick Hanauer:
And I think it’s worth saying that, in order for the economy to be functioning, I think in a highly constructive way, and in order for the democracy to be functioning in a highly productive way, the normalized wages for people in the hospitality industry, almost certainly need to be some place between 50 and 100% higher than they currently are, too.
Heidi Shierholz:
I was just looking at some numbers on the working poor and something like … This is even before COVID. More than 13 million workers who work full-time, year-round, earn less than 200% of the poverty rate. Meaning, they are in poverty or near poverty. It’s just striking just how much employers aren’t doing to ensure that people have reasonable standard of living.
David Goldstein:
So leisure and hospitality, the industry is booming, they’re hiring a ton of workers, wages are going up. What’s the rest of the labor market look like? Are we seeing that pushing up wages dramatically elsewhere or were the other sectors still lagging behind?
Heidi Shierholz:
So one thing I will say is I wouldn’t yet characterize leisure and hospitality as booming just in the sense that there’s still a massive gap. They’ve seen strong job growth recently but are still way down below where they were before the recession hit. So there’s still a lot of ground to make up. But they’re, in recent months, seeing stronger job growth than other areas. We’re still seeing broad job growth.
The overall story is we’re seeing job growth, but there is still a massive gap compared to where things were before the recession hit. There’s still a ton to make up. What I see in the broader labor market is a story of we just don’t have yet enough demand for workers, enough demand for work to be done. We see it really across the board, a big gap in the labor market. Jobs really down from where they were before the recession hit. Things growing up just still a huge amount to make up.
So that’s the overriding story. It’s not a people don’t want to work story. It’s just in general, the biggest driver out there is we don’t yet have enough demand for work to be done. There is this one sector, leisure and hospitality sector where demand is in this short period outstripping supply. But that is not the broader story in our labor market by any stretch.
David Goldstein:
So if we’re still suffering from a shortage of demand, then slashing unemployment benefits, that would be a little crazy, right?
Heidi Shierholz:
It is. It makes zero sense. It is terrible economics. It’s cruel, first of all. There’s millions of people who will have their benefits cut off while they either can’t find a job or can’t work because of things like care responsibilities as a result of COVID. Or serious, legitimate health concerns about COVID. So you’ll increase the suffering of those folks, increase people living in poverty. So it has the cruelty aspect to it. But then it’s also just terrible for the overall economy because those benefits are supporting the spending of those workers.
We know consumption is 70% of our economy. You are … These states, and there’s at this point, over 20 of them, states who have said that they are likely either are or are considering turning down Federal unemployment insurance benefits because of this misplaced concern that the UI benefits are keeping people out of work and damaging the labor market. That money is coming from the feds. It was an injection of cash into their economy. Turning that down when we still have a big demand shortfall, it’s just terrible economics. It’s hard to think of something that is a worse decision that a governor can make at this point.
Nick Hanauer:
I’m curious Heidi, from your perspective, this was an unprecedented crisis and an unprecedented economy, the past 14, 15 months or so.
Heidi Shierholz:
Indeed.
Nick Hanauer:
Do you think there are going to be lasting changes to the labor market as a result of this? Is this just, things will eventually get back to normal or are we seeing some sort of larger reassessment of the value of work and employment in general?
Heidi Shierholz:
One thing that I know from having lived through more than one recession now is that it is always a big narrative that things are totally different now. This is a new normal, there’s something that’s deeply, structurally changed as a result of this recession. And it’s rarely true. People were definitely saying that in the aftermath of the Great Recession and as we sit now, it’s actually hard to come up with five or six things that actually really changed as a result of that recession. Like what happened there is the jobs that came back looked pretty much like the jobs that were lost. I mean there’s always of course some long-run structural changes but it wasn’t massively affected by that recession. I think that’s by large going to be true about this one, too.
Although, I do think there’s one thing that will be different is that … I mean, who knows how this will actually play out, but I believe there will likely be more telework among white-collar workers. And so that will have some effect on things like business travel, dry cleaners. Like you can come up with some things that are going to be affected but I don’t think it’s going to be massively different.
Nick Hanauer:
Yeah. So is there anything that we haven’t covered, Heidi, that you think we should?
Heidi Shierholz:
Well one thing is the effect of unemployment insurance. Do you want to talk about that?
Nick Hanauer:
Yes, yes.
Heidi Shierholz:
Maybe not … I’m getting that question everywhere so it could be –
Nick Hanauer:
Yeah. yeah, yeah.
Heidi Shierholz:
Okay. With all this talk of labor shortages, one of the things that people have jumped to immediately is okay, this is a huge problem and it’s because of pandemic unemployment insurance benefits. And so, in order to answer that question when you dig in the data to see if that’s true, what you find is that … unemployment insurance benefits are very unlikely to be a major driver of what’s going on here.
So one thing that points to that is if you look at what kind of workers benefit the most from pandemic unemployment insurance benefits? So one of the things with the pandemic programs is that you get, not just benefits calculated by the normal formulas but also an additional 300 dollars per week. That 300 dollars means a lot more to low-wage workers than to high-wage workers. So you would expect if unemployment insurance were keeping people out of the labor force that it would be far more likely to show up amongst low-wage workers but in fact, that is absolutely the opposite of what we’re seeing. Low-wage industries are the ones that are coming back the fastest. It is middle and high-wage industries that are seeing the most sluggish growth right now. That goes absolutely against the idea that unemployment insurance is what’s keeping people from working.
And I think the other things that are more likely candidates are we know there’s lots of care responsibilities as a result of COVID. Over a quarter of schools are still closed. So that’s one thing keeping people out of the labor force. You also have serious ongoing health concerns that many workers have. One of the things you see is that as vaccinations go up, surprise, surprise, employment also goes up. Which, I know there’s causality going in both directions there, but it really does suggest that people are staying out of the labor force until things get safer for them.
So there’s a lot of things going on but the data are not screaming unemployment insurance is a big driving problem right now. And I’ll go even further to say though that it is … We sort of touched on this a little bit earlier but one thing we know is that many jobs and face-to-face services like restaurants are just unambiguously worse than they were before the recession hit. They are more stressful, they are harder, they are more dangerous than they were before COVID. So a well-functioning labor market would see wages rise in those sectors. Like if a job is harder, if it’s more dangerous, then we should see that be addressed in a well-functioning labor market by higher wages. I mean we talked about this but we do know that our low-wage labor market is not a well-functioning labor market. That businesses have a ton of power to suppress wages.
But one thing that may be going on with unemployment insurance right now is that it’s giving workers a little bit of room to not be so desperate that they have no choice but to take a job no matter how poorly it pays. And in that sense, that unemployment insurance is actually making the labor market run more efficiently. It’s actually making it run better by balancing the power out a little bit between [inaudible 00:24:31] and employers.
Nick Hanauer:
Right. It’s giving workers, among other things, the space to go find a job if not for a different company maybe even in a different industry that pays better.
Heidi Shierholz:
Right. And I think that that is … I think there’s likely something there but I will … I do also want to fall back on the … I still, even with that, do not believe that unemployment insurance is a really driving factor here. Otherwise, we would see employment growth in low-wage sectors being much slower than in high-earning sectors which is not the thing we’re seeing at all right now. So that’s still true that I don’t think unemployment insurance is a big driving factor but it could be sort of playing that role of helping the labor market operate a little bit more efficiently right now.
Nick Hanauer:
Well Heidi, thank you so much for your time. This was absolutely terrific.
Heidi Shierholz:
Thank you so much for having me. This was an absolute delight.
Nick Hanauer:
Yeah. We’ll talk soon.
Heidi Shierholz:
All right. Cheers.
Nick Hanauer:
Bye.
Heidi Shierholz:
Bye-bye.
David Goldstein:
So Nick, I think this is all a classic example of your definition of economics. You describe it as a story about who gets what and why.
Nick Hanauer:
Exactly.
David Goldstein:
And the story here is that workers are getting too much and so they’re not working, right?
Nick Hanauer:
Exactly, exactly.
David Goldstein:
And so we need –
Nick Hanauer:
And that that’s wrong.
David Goldstein:
That’s wrong.
Nick Hanauer:
That’s wrong. And bad for everyone. And if workers were just more desperate and poorer and more afraid, then that would be easier for American corporations and that would be good for everyone.
David Goldstein:
Right, right. And in their defense, in your defense as an employer and a capitalist, the past 40 years have accustomed you and your capitalist buddies to having outsize power over workers and using that to suppress wages. So you can understand why coming out of this pandemic, employers should have every expectation that workers will come back at the same low wages that they had before the pandemic started.
Nick Hanauer:
That’s right.
David Goldstein:
And so it’s like, oh no, what’s wrong? They want $15 an hour.
Nick Hanauer:
Yeah, that’s right.
David Goldstein:
Turns out, they always wanted $15 an hour.
Nick Hanauer:
That’s right. And we just didn’t have to pay it.
David Goldstein:
[crosstalk 00:27:01] –
Nick Hanauer:
Yeah.
David Goldstein:
Right.
Nick Hanauer:
Yeah. Everybody’s business plan contemplated continuing to pay people $2.13 plus tips. Not $15 an hour plus tips. And so, there are a lot of corporate CEOs who are very, very sad about this latest development.
David Goldstein:
Here’s a great example, Nick, about how this plays out. This is from my home state of Pennsylvania on the other side though, in Pittsburgh. There’s an ice cream parlor. Klavon’s Ice Cream Parlor was having trouble hiring workers. They couldn’t find enough people to be able to open seven days a week for the Spring and Summer rush that was coming up. And so the minimum wage in Pennsylvania is $7.25 an hour, the federal minimum wage. And they announced on March 30th that they would be doubling their starting wages from $7.25 an hour to $15 an hour. And you know what happened?
Nick Hanauer:
What happened?
David Goldstein:
Suddenly, no labor shortage. This is a quote, “It was instant. Overnight, we got thousands of applications that poured in. It was overwhelming.” Because –
Nick Hanauer:
Oh, golly.
David Goldstein:
Well yeah. What did you think? People didn’t want to work for $7.25 an hour. It wasn’t the unemployment. $7.25 an hour is too damn low.
Nick Hanauer:
Yes, exactly.
David Goldstein:
And $15, I’d argue $15 is too low, too. But it’s twice as much as 7.25. And you know, if you were a capitalist, if you believe in markets, this is the way the labor market is supposed to work. If you’re having trouble hiring people, if there’s a shortage of workers, and by that I mean, you can’t find enough people to fill the jobs that you have open –
Nick Hanauer:
It has to be because you’re not paying enough.
David Goldstein:
Pay more, yes. Pay more. Supply and demand.
Nick Hanauer:
Yes, yeah.
David Goldstein:
And like I said, over the past 40 years, the labor market has been broken. Supply and demand hasn’t played the role it’s supposed to play in raising wages and now, as Heidi pointed out, one of the things that that unemployment benefit does is it helps fix a broken labor market by addressing that power and balance and providing a little bit of countervailing power on behalf of workers for a change to allow them to force up their wages to where they should have been all along.
Nick Hanauer:
Yeah. In any case, it was great to chat with Heidi and just remember listeners, it’s not a labor shortage. It’s a wage shortage.
So in the next episode of Pitchfork Economics, we’re going to be building on our discussion of wages with Heidi Shierholz with a discussion about some really exciting new research on what drove wage suppression over the last 40 years with Larry Mishel and Josh Bivens of EPI, as well.
Speaker 3:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our riding on Medium at Civic Skunk Works and peek behind the podcast scenes on Instagram at Pitchfork Economics.
As always, from our team at Civic Ventures, thanks for listening. See you next week.