By James Pethokoukis and Michael Strain
Since the economic downturn from the COVID-19 pandemic, production has rebounded to regain pre-pandemic trends. But the effects of the pandemic continue in the U.S. job market, with stagnant labor market participation rates and a shortage of workers to fill vacancies. Michael Strain joined a recent episode of âPolitical Economyâ to explain what’s going on.
Mike is the Arthur F. Burns Fellow in Political Economy and the Director of Economic Policy Studies at AEI.
Pethokoukis: What is the state of the labor market at the moment?
Strain: If you look at some indicators, you see a healthy job market. There are more vacancies than unemployed people. A big problem the American labor market has experienced over the past two decades has been the opposite. Now jobs are driving out workers; workers are not looking for jobs. People would only voluntarily quit their jobs if they were confident enough that they could get a better job, or at least a job at least as good. Nominal wages are increasing very rapidly. So all of this really points to a very strong job market.
The demand for labor is soaring, employers are rapidly raising wages and creating vacancies that they are trying to fill. At the same time, we have six or seven million jobs in the hole, labor market participation isn’t really improving, and we have millions of people on the sidelines who shouldn’t be there.
Why don’t they come back to work?
Well, I think it’s a combination of factors. Some people are still worried about the pandemic and feel uncomfortable coming back to work because of it. Schools are open for the most part, daycare centers are open for the most part, but they are still very affected by the pandemic. The likelihood of us getting an email or phone call saying, “Hey, your child’s class is going to be closed for a week or two,” is a daily reality for us, and it’s just not the kind. something that people had to worry about before the pandemic. And I think it prevents some people from re-entering the workforce.
Another important factor is the generosity of unemployment benefits. President Biden, as part of the US bailout, increased unemployment benefit generosity by $ 300 per week. On average, unemployment benefits are generally around $ 350 per week. So going from 350 to 650 is a very big increase, and that has kept people on the sidelines. This program expired last month, but it takes a while for people to start their job search and find a job. And so, I think that’s another factor that keeps people on the sidelines.
Some people say the workers will not come back because they had this free time and now realize they hated these jobs. These people will not come back unless the salary structure in the United States changes. Do you see something like this happening?
No, I don’t, and I hope I don’t. I think people have thought about the jobs they used to have, but they are doing these assessments in the context of a pandemic. It is a context where schools are uncertain. It is a context where one can still obtain a decent income by not working. As that environment changes, their assessment of their employment opportunities, I guess, will change as well. And hopefully this is the case.
Companies are able to produce goods and services as if there had never been a pandemic, even if we are six or 7 million workers in the hole. And my concern is that companies will have figured out how to cope with fewer workers. By the time workers are ready to return, the demand for labor might have cooled and companies might say, âHey, we just need fewer workers than before. And the jobs they expect to return to may not be there for everyone.
And in this kind of situation, either these people need to increase their skills to be more attractive or, what, we start paying people a basic income not to work? Is this a permanent change?
Currently, wages are increasing at an annual rate of about 5%. One of the places where wages come from is the productivity of workers. And then another determinant of wages are things like bargaining power, the balance of power between workers and companies. You see wages go up because at the macroeconomic level, demand is exploding and supply cannot keep up. And it does not increase the skills of workers; it tilts the balance of power from corporations to workers.
But there are no institutional changes in the US economy that permanently alter this balance. It’s not like union density is increasing dramatically, or it’s not like all kinds of new laws are being passed. As demand moderates and the supply of the economy is able to expand, we will start to look more and more like what we had before the pandemic. And the balance of power between workers and businesses will also normalize. We will end up with a workforce that is no more skilled and a dynamic between companies and workers that looks more like what it always has been. Nothing that happens this summer or fall is permanent.
As I hear about this âbig resignationâ and critics of the US job market, there seems to be real disagreement over the value of work. Do you have a different philosophy of the value of work than other people?
There are jobs which are physically demanding and which are unpleasant for a multitude of circumstances, to be sure. And there are people in public life who argue that this is not a good thing. And I think their point of view is correct. The labor market should be characterized by upward mobility, that is, people can move up the ladder and not just get stuck in one of the rungs. But I think this view lacks a lot of the dignity inherent in all work and the ability of people to make a real contribution to society in all of those jobs.
I think it’s unfortunate that there are important voices in public life who call these kinds of jobs dead-end jobs. I think that’s the wrong message to send, telling millions of people that their jobs are dead ends. They make valuable contributions and can serve as a stepping stone to even greater contributions and even better jobs.