Now that we’ve emerged from what seems like a 17-year quarantine, we see it everywhere: HELP WANTED. Across the state, across the country, businesses cannot find enough people to staff the needed shifts. For you and me, that could mean longer waits, higher prices and even the loss of a local favorite or two. But what’s the source of this problem? We may jump to the conclusion that the enhanced unemployment benefits passed last year are literally paying people to not work, so they aren’t. And while this may be one factor, it is likely to be a small part of a larger, more complex situation.
Where do we stand right now? In February 2020, there were 8.2 million more people working than in April 2021. Also, considering the working population grew about 1.5% in 2019, we can add projected growth to the actual loss and find ourselves 10-11 million workers below our potential. And this doesn’t include those who would be unemployed regardless of the pandemic.
The Bureau of Labor Statistics reports various causes of unemployment: everything from unemployment benefits to child-care needs to retirement. For example, in April 2021, an estimated 2.8 million people specifically cited the pandemic as the primary reason they weren’t even looking for work. All of these reasons can, in one form or another, be linked back to the pandemic. Remember that just one month ago, mask mandates were common and vaccines were rare.
This situation also needs a historical perspective. Consider the last recession from December 2007 to June 2009. To this day, employment in the construction industry has yet to reach its 2006, pre-financial crisis peak. That was almost 15 years ago. That recession hit construction hard, while this recession has devastated service-oriented industries, a sector that makes up nearly 50% of the whole economy.
Consider the food and beverage, leisure and hospitality, and daycare service industries. Employment in these three sectors is only around 85% of where it was pre-pandemic, while other service-oriented sectors, such as professional, business, education and health services are at 95%-97% of their pre-pandemic levels. These sub-sectors have virtually (pun intended) recovered at this point, while those that were more impacted are still lagging behind. Why does it seem so pronounced this time around? One reason is recency bias: Our recollections of something years ago have faded. The other reason is that these “help wanted” signs aren’t buried in the classifieds this time. They’re highly visible in storefronts, fast-food signage and even on billboards.
What does this all mean? Just as we saw in the construction industry more than a decade ago, many people have simply left service-sector fields in search of different types of work. To reverse this migration, we’re going to need to reverse the incentives. That is, employers will need to lure them back with higher-paying, more stable jobs than what the other sectors are offering. Lack of pay and job instability during the pandemic is what drove them out in the first place. Flipping the script is going to take time and money.
How does this impact you and me? Again, we’re probably going to see longer wait times, higher prices and increasingly stressed-out staff. These price increases are not likely to be as dramatic as some might suggest, but they’ll emerge nonetheless. A number of businesses may shutter as well. Some just won’t have the profit margins to deal with the needed wage rates. This will allow a reallocation of workers to those who need the help and can afford to pay for it, easing the shortage. This is that classic — survival-of-the-fittest — capitalism at work.
How long is this going to last? First, we need to step back and understand we’re only 14 months removed from one of the biggest economic catastrophes in U.S. history, but that we’ve been doing this for 14 months. Just like recessions, recoveries are disruptive and uneven. To expect that everything will simply swing back to normal at the drop of a hat is folly. This will eventually work itself out, but I wouldn’t expect these growing pains to subside for at least another six months. Our lives may be able to start going back to normal, but this is a less-than-coordinated effort among 300 million people. It just takes time.