Many employers are alarmed about the current labor shortage — the phenomenon of a labor market with more job openings than unemployed workers. There are two supposed problems, they allege. First, that the labor shortage is caused by government benefits that discourage work. And second, that the shortage will harm the economy.
Both claims are wrong. With the latter, the opposite is likely to be true: The labor scarcity we’re experiencing is real. But this is an opportunity, not a crisis.
Let’s start with the causes of the current labor shortage. Research on this question is unambiguous: We don’t know what’s going on. One logical explanation is that generous pandemic unemployment insurance benefits are now giving them reason not to work. But the data don’t bear this out. Multiple analyses find that generous benefits did discourage workers from seeking new jobs. But the effects were small. States that terminated federal pandemic unemployment benefits ahead of schedule this summer saw only a minuscule decline in unemployment relative to those that didn’t. Tellingly, continental Europe and Britain are experiencing labor shortages similar to those in America, even though they barely expanded unemployment benefits during the pandemic. (Instead, they covered the paychecks of workers whose hours were cut or who were furloughed.)
A second culprit is child care. When schools, day care centers and summer camps closed, parents — moms, mostly — became full-time caregivers, making a return to the workplace all but impossible. Women with children have since returned to work at almost the same rate as women without children, meaning access to child care isn’t the main culprit.
Let’s entertain a third possibility. People’s valuation of their own time has changed: Americans are less eager to do low-paid, often dead-end service and hospitality work, deciding instead that more time on family, education and leisure makes for a higher standard of living, even if it means less consumption.
If the lack of enthusiasm for bad jobs lasts, does this bode ill for the U.S. economy? The answer is no — and here’s why: The U.S. doesn’t have a job quantity problem; instead, it has a job quality problem.
For the past 40 years, our economy has generated vast numbers of low-paid, economically insecure jobs with few prospects for career advancement. On almost every measure — pay, working environment, prior notice of job termination, and access to paid vacation, sick time and family leave — non-college-educated U.S. workers fare worse than comparable workers in other wealthy industrialized nations. Consider this: Low-education workers in Canada make one-third more per hour than their U.S. counterparts. Of course, America’s job-quality problem is longstanding. So what does it have to do with the pandemic?
Imagine that the U.S. had a market mechanism that spurred employers to voluntarily pay higher wages, offer better benefits and use workers more productively. Actually, that mechanism exists — it’s called a labor shortage. Indeed, the only times in the last four decades that U.S. workers without college degrees saw rapid, sustained improvements in working conditions were during similar periods of labor scarcity: in the late 1990s, during the dot-com boom, and in the years immediately before the pandemic, when the unemployment rate fell below 4 percent. The period of labor scarcity, then, is an opportunity to catalyze better working conditions for those who need them most.
Couldn’t raising wages spur employers to automate many low-paid service jobs? Yes — but that’s not bad. There’s no future in working the fry station at White Castle. We should welcome the robot that’s now doing that job at some locations. Automating bad jobs has positive consequences for productivity. When employers pay more for human labor, they have an incentive to use it more productively. Otherwise, they aren’t worth paying for. And one way to use people more productively is to train them. This may be one reason that employers provide more training opportunities in a tightening labor market — something happening now.
Don’t higher wages mean higher prices for consumers? Yes. Restaurants and hotels may get a bit pricier, and customer service agents may be more scarce at big box stores. But most of us are workers as well as consumers. Everyday low prices for consumers partly reflect subsistence wages for many workers. And that’s no bargain for the workers whose low pay keeps those prices low. It’s a telling irony that, on the same day, The Washington Post published one story about employers in Memphis “begging” for new employees and another reporting that foot traffic is up by nearly one-third at Dollar General, where the poorest Americans shop.
Let’s say that you like cheap burgers and don’t lose sleep over the low wages burger flippers earn. Would it bother you to know that their well-being is subsidized by taxpayers? Members of the bottom fifth of U.S. households receive an average of $9,500 per person per year in means-tested government benefits like Medicare, Medicaid and food stamps. More than 20 percent of income for the poorest fifth of households comes from refundable tax credits like the earned-income tax credit, which supports low-wage families with children. So, one reason companies can pay such low wages is that you’re paying for the things their low-wage workers can’t afford.
These benefits are indispensable. But they are necessary precisely because it’s so common for Americans to be both working and poor. If wages were higher, more workers could pay for necessities out of pocket; we wouldn’t need to tax the rich as much to support the poor.
Bottom line: That burger isn’t as cheap as you think; it’s just that you’re paying part of your meal tab in federal taxes.
As pandemic stimulus programs wind down, the current labor crunch could vanish, but I wouldn’t bet on it. For years, social scientists have warned that because of declining birthrates, retiring baby boomers and severe immigration restrictions, we’re approaching an era of labor scarcity. The good news is that this long-term demographic crunch is going to make cheap labor more rare. Countries undergoing similar demographic changes have seen rising wages among young non-college-educated workers, falling inequality, and more “healthy” automation — like those fast-food robots. Labor scarcity may mean you’ll be speaking your orders to a conversational AI at the drive-through. But it won’t hurt that much, and the workers who are not doing those jobs will probably be better off in the jobs they’ll do instead.
Labor scarcity won’t solve all our labor market problems. Numerous institutional maladies have made life abysmal for many less-educated workers in the U.S. Those maladies need to be fixed. But on this Labor Day weekend, let’s also raise a (self-serve) toast to labor scarcity — while hoping that the Delta variant does not weaken the strong hand that labor was recently dealt.
David Autor is a professor at the M.I.T. Department of Economics. He co-directed the M.I.T. Task Force on the Work of the Future.
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