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Unemployment Benefits Are Not Creating A Worker Shortage

Above photo: Wages may have risen a bit faster than average this year in the hospitality industry, according to the government’s employment cost index, though state minimum wage laws may have played a role. Media News Group/Reading Eagle via Getty Images.

While some employers may be struggling to hire for one reason or another, economists say generous unemployment benefits are not the cause.

As the U.S. economy bounces back from the COVID-induced downturn, some employers say they’re having a hard time finding workers. GOP lawmakers like Rep. David Rouzer (N.C.) blame the safety net.

“This is what happens when you extend unemployment benefits too long and add a $1400 stimulus payment,” Rouzer said on Twitter last week, posting a photo from a Hardee’s that said it was closed for lack of staff. “Right when employers need workers to fully open back up, few can be found.”

It’s a dubious argument. Republicans said this same thing last year when Congress passed a big relief bill that added $600 per week to state unemployment benefits for four months.

Democrats “are going to make the next four months impossible for small businesses to hire,” Sen. Lindsey Graham (R-S.C.) said.

“This bill creates an incentive for people to be unemployed for the next four months,” Sen. Rick Scott (R-Fla.) said.

Sen. Ben Sasse (R-Neb.) said the benefits would “knock this nation still harder in the coming months by unintentionally increasing unemployment.”

At the time, millions of workers were losing their jobs every week, and nobody knew how bad things would get. But a few weeks after the initial lockdowns, businesses started recalling workers, millions returned to their jobs despite the extra benefits, and the jobless rate plunged. A spate of academic studies found the extra benefits weren’t stopping people from going back to work after all.

At $300 per week, the federal supplement is half what it was last year, but the criticism is twice as intense even though the previous doomsaying didn’t pan out.

“People get paid more not to work than to work,” Sen. Bill Cassidy (R-La.) told HuffPost, referring to the extra federal benefits. “Economists talk about that, but anecdotally, it’s clear.”

It’s true that the benefits amount to more than prior wages for some workers. It’s just that the extra money doesn’t seem to have held workers back.

The unemployment complaint fits a broader Republican argument that Democrats under President Joe Biden are out to destroy the American work ethic with their proposals for new parent benefits and affordable child care.

“Think about what the Democrats have done,” Rep. Kevin McCarthy (R-Calif.), the House Republican leader, tweeted over the weekend. “They have demonized work so Americans would become dependent on big government.”

While some employers may be struggling to hire for one reason or another right now, economists say generous unemployment benefits are not the cause.

If demand for workers were exceeding supply, then the price of labor would be shooting up. But as Federal Reserve Chairman Jerome Powell said last week, overall wage growth hasn’t increased. “We don’t see wages moving up yet, and presumably we would see that in a really tight labor market,” Powell said at a press conference. “And we may well start to see that.”

For now, unemployment remains elevated, at 6%, compared to 3.5% before the pandemic, and there were 4 million more unemployed people in March 2021 than in February 2020. That data reflects people who are trying to find jobs, not those who have removed themselves from the workforce for a number of reasons, like a lack of child care. Yet some business owners still say there are no willing workers out there.

Chef Andrew Gruel, owner of the Slapfish restaurant franchise, took to Twitter last week to declare “there are no employees available in California.” Gruel said his eateries were offering $21 per hour but couldn’t find any takers. The top reason? “They are making enough on unemployment and would rather not work.”

William Spriggs isn’t buying that. The chief economist at the AFL-CIO labor federation, Spriggs said it is “self-evident” that millions of people are trying to find work. Just because an employer hasn’t found them yet ― at the wages the employer is willing to pay ― doesn’t mean the workers aren’t out there.

Spriggs said the normal hiring networks that employers rely on were blown up by the pandemic. Some employers who received forgivable government loans were able to keep their workers on the payroll, but many firms simply let them go during lockdown. A year later many of those workers have taken other jobs, moved on or even died.

“They tend to recruit using networks ― friends and relatives of people they already hire,” Spriggs said. “And the problem when we decided we would handle this by separating people from their employer is we broke up those networks.”

Workers understand that unemployment benefits do not last forever, Spriggs noted. The federal benefits will expire in the fall.

He also said employers may be reluctant to pay the “market clearing wage” ― the pay necessary to attract workers to all the available work, especially at a time when many jobs have become more difficult and stressful due to the pandemic. “Then they get shocked when they try to expand and find out, ‘I have to raise my wage,’” Spriggs said.

(HuffPost tried to ask the Hardee’s restaurant in Rouzer’s tweet how much it had raised its starting pay to attract new workers, but no one answered the phone there.)

Powell, for his part, acknowledged some employers may be struggling to find people who want to work for them. He said workers might be wary of virus exposure, or are running into other obstacles to returning to work. In other words, there’s still a plague going on.

“One big factor would be schools aren’t open yet, so there are people who are at home taking care of their children that would like to be back in the workforce, but can’t be yet,” he said.

In the aftermath of the Great Recession, many employers lamented that they couldn’t find workers, even amid high levels of unemployment, prompting some commentators to proclaim a lack of skills among American workers. (The federal government wasn’t boosting weekly jobless pay at the time.)

“But what we saw was that labor supply generally showed up,” Powell recalled. “In other words, if you were worried about running out of workers, it seemed like we never did, you know?”

The loudest complaints of a worker shortage now seem to come from restaurants, as more people resume their pre-pandemic dining-out habits thanks to widespread vaccination. 

The National Restaurant Association, an industry lobbying group, says a variety of factors, not just benefits, contribute to hiring difficulties. “With fewer people in the workforce, the stimulus supports still in place, worker safety concerns, the need for caregivers to remain at home, and much greater competition with other industries for workers, operators are returning to pre-pandemic recruitment techniques for hiring,” the association’s Hudson Riehle said in a statement.

Wages may have risen a bit faster than average this year in the hospitality industry, according to the government’s employment cost index, though state minimum wage laws may have played a role. In general, restaurant work doesn’t pay very much, with median wages around $11 for servers in 2020, compared to more than $20 across all occupations.

Many restaurant jobs are also much different than they used to be, with more outside seating, for example, plus masks and new cleaning protocols. Not to mention new risks of getting sick. Some restaurant workers recently told Eater that they are willing to work ― they just want pay that reflects the hazards.

It’s difficult to square the notion of a shortage of food service workers with the strong job growth in that industry, said Heidi Shierholz, former chief economist at the Labor Department now with the Economic Policy Institute. Dining and drinking establishments added 176,000 jobs in March, the biggest gain in any sector. 

“I’m sure that labor supply is lower than it would be if we didn’t have COVID, but that doesn’t mean there’s a labor shortage,” Shierholz said.

Cary Christiansen, of Topsfield, Massachusetts, worked as a varsity softball coach before the pandemic. She said the job hasn’t come back yet, but summer league will start in June; she’s also applied for another job as a dispatcher and is waiting to hear back.

In the meantime, Christiansen, 55, said she and her husband have been able to pay their mortgage and make car payments thanks to unemployment benefits, but that other bills, including for health insurance, have gone unpaid. She’s expanded her garden and started raising chickens, but still needs to find a job, and could wind up back in the restaurant industry, something she said she hasn’t done since 1986.

“If this other job doesn’t pan out in the local community I’m just going to go back to bartending,” she said.

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