The economic data is fairly clear: employers are getting desperate for workers in the United States. By the end of April 2021, job openings rose to an unprecedented 9.3 million, according to the Bureau of Labor Statistics.
While the actual number might have surprised some, the fact that employers are having difficulty finding enough workers isn’t that surprising. As the country reopened and more people got vaccinated against the coronavirus, many economists thought that people would quickly return to work.
Things haven’t turned out that way and many consumers have felt the effects. For example, restaurants have limited menus or reduced dining room capacity. In an attempt to combat this worker shortage, many states are reducing unemployment benefits. The primary belief (at least publicly) is that reducing unemployment benefits will make unemployed individuals more willing to go back to work.
But will giving unemployed individuals less money fix this worker shortage? Data suggests that any effect will be minimal. If that’s the case, what’s really going on here and what does it tell us about employment as a whole in this country? Perhaps the answer to this question is less about worker pay and more about worker rights.
An Overview of the Worker Shortage
In addition to the 9.3 million job openings, various economic indicators strongly support the idea that there aren’t enough workers in the United States:
So the key question is why does this shortage exist? Is it the extra unemployment payments people are receiving?
States Reducing Unemployment Benefits
In response to the coronavirus pandemic, Congress passed a series of relief bills that provided recipients of state unemployment an additional $600 in weekly benefits on top of what they were receiving from their state. The length of time recipients were eligible to receive benefits was also extended.
This $600 per week in additional unemployment payments was later reduced to $300 and is currently set to end on September 6, 2021. But about half of the states have announced that they will end (or already have stopped) providing these additional federally-funded unemployment benefits. There are some lawsuits to stop this and a few have enjoyed early success.
The states’ primary reasoning for ending the benefits is that if unemployed individuals are earning less money, they will be more likely to find a job and alleviate the worker shortage. But for the vast majority of unemployment recipients, this is probably not true for several reasons.
First, only in three states (Montana, North Dakota and Wyoming) were the combined state and federal ($300 per week) unemployment benefits exceeding those states’ average wages. In other words, unemployment beneficiaries in 47 states were still receiving less money than their respective state’s average wages.
Second, a paper from the Federal Reserve Bank of San Francisco concluded that “only a small fraction would turn down an offer to return to work at their previous wage under the CARES Act expanded UI payments.”
Third, only 3% of individuals were earning enough from unemployment such that they had no financial need to return to work. This data came from a June 17, 2021 BTIG report titled, “Labor Shortage Unlikely To Be Resolved With Expiration of Unemployment Benefits.” This report had some other interesting findings, such as:
- Only 6% of unemployment recipients would be motivated to go back to work when their unemployment benefits ended.
- Only 14% of those surveyed were getting more money from unemployment benefits than from their last job.
- After higher pay and good benefits, work flexibility was the primary motivator to get someone to return to an hourly wage position.
This data came from a study where BTIG surveyed almost 300 individuals from all around the United States and asked them questions about receiving unemployment benefits and returning to work.
The BTIG study, as well as other data, strongly suggests that the increased unemployment benefits are not the primary reason we have this current worker shortage. But if that’s the case, why aren’t more people returning to work?
The Real Reasons Why There’s a Worker Shortage
Compensation level is certainly an important factor as to why there’s a worker shortage. But that doesn’t automatically mean the higher unemployment benefits are its primary cause. There are several reasons for this.
First, stagnant wages have been a major problem for decades. To put things in perspective, in 1968, the federal minimum wage was $1.60 an hour. In 2021 dollars, the equivalent federal minimum wage would need to be $12.38. But instead, it’s only $7.25. So even before the coronavirus hit, workers were already being underpaid. Yet they had little leverage to demand higher wages.
Second, workers want better working conditions. Remember when Jimmy Johns asked its low-wage sandwich shop and delivery workers to sign unreasonable non-compete agreements? How about Epic Systems Corp. v. Lewis, where the U.S. Supreme Court concluded that employers can force employees into individual arbitration (as opposed to taking collective action) to resolve employment disputes?
And let’s not forget how tipped workers are sexually harassed at far higher rates than non-tipped workers. Is it a coincidence that the restaurant industry is one of the largest (if not the largest) users of tipped workers and is also one of the hardest hit by the worker shortage?
Third, workers want a better work-life balance and scheduling flexibility. Thanks to the coronavirus forcing many businesses to offer telecommuting, remote workers are starting to realize that having greater work flexibility is possible. So workers are starting to expect the option for remote work. And if they can’t get it, they’re quitting (“The Great Resignation”).
Before the pandemic, many employers would tell their workers that they had to come into the office. Employers could use whatever reasons they wanted to justify this requirement. Now, it’s much harder for employers to justify an office presence when their workers have been doing a fine job working from home.
This doesn’t mean there will be a complete shift from office work to remote work. But maybe employees feel that coming into the office only three or four times a week is necessary and they can use their extra day or two working from home to achieve the work-life balance they’ve always wanted.
Fourth, there are child and family care responsibilities. Many people want to return to the workforce, but can’t because they have a child or family member to care for. They want a job that allows them the flexibility to take time away from work to care for a child or family member. And if this isn’t possible, they need schools or daycares to open so they can go to work while their children are properly supervised.
Why This Shouldn’t Be Surprising
Workers in the United States want more rights. Yes, money is important and there comes a point where someone will endure miserable work if you pay them enough. But enduring an awful job for fantastic pay doesn’t apply to the vast majority of workers.
Until the coronavirus pandemic completely upended the economy, few workers were in a position where they could demand the benefits they wanted or choose to leave a job that was treating them so badly. Now, there are more people with not only the bargaining power to get what they want, but also the motivation to ask for it.
Perhaps states stopping the additional unemployment benefits isn’t about employers not wanting to pay their workers more; rather, it’s about employers not wanting to face the possibility that employees now have the upper hand.
This not only means workers can ask for higher wages and better benefits, but it also means employers will have a harder time getting away with mistreating workers.
Whether it’s a boss just being a jerk to an employee (potentially legal) or engaging in discrimination (possibly illegal), more employees now feel confident that they can find a better job somewhere else.
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