Supply Chain Disruption, Labor Shortage, and Inflation Put Pressure on the Economy

There have been numerous economic consequences stemming from the COVID-19 pandemic. While the Delta variant continues to spread across the United States, effects on the economy have been brewing and are beginning to greatly impact society. The disruption of the global supply chain is arguably the main cause of the domino effect of other problems including labor shortages and rising inflation.

The global supply chain disruption first started to affect the U.S. economy prior to the pandemic during the trade war with China. However, the pandemic itself has really been the primary cause of the disruption. Because of the shutdown of many businesses worldwide, there was a large shortage of many essential manufacturing products, such as advanced microchips (Friesen, 2021).

The chaos on the supply side has caused bottlenecks at major ports in the United States where hundreds of shipments are brought in from Asian markets to be distributed to domestic suppliers (Berger, 2021). In addition to the supply-chain shortage from the international manufacturing plants themselves, there has been an increase in shipping costs in the United States.

Enhancing the pressure on global supply chains is the extensive American labor shortage. During the height of the pandemic,  millions of Americans relied on enhanced unemployment benefits provided by federal stimulus packages (O’Neill, 2021). Now, as the stimulus packages are expiring, many people in the domestic labor force are discouraged from working and still are collecting unemployment benefits. There are many possible reasons for the thousands of voluntarily unemployed workers in the nation, though it is implied that the significant decrease in the power of the real wage as well as poor working conditions are strongly contributing to this lack of motivation.

In addition to people not wanting to work, there have been a large number of unions recently that have gone on strike (Newman, 2021). Other non-unionized groups have also issued complaints, citing issues with working conditions. One of the main reasons for these vast complaints is the declining power in the real wage. The supply chain shortage has resulted in an increase in prices to consumers, causing inflation (The Editorial Board, 2021). There is an argument to be made that the increased consumer demand for goods and services, coupled with the supply shortage, has led to an even greater increase in the domestic price level.

Because of this inflation and a stagnated federal minimum wage, the purchasing power of the average American worker at many major domestic corporations has significantly decreased (Newman, 2021). Workers are angry and fighting for increased wages, flexible schedules, and improved working conditions overall. 

There is, unfortunately, no end in sight to the global supply chain disruption, which seems to be the root cause of the worker shortage and increasing inflation in the United States. Even though the unemployment rate is decreasing, there is a major caveat. The number of voluntarily unemployed individuals has increased, but these discouraged workers are not included in the labor force, and therefore are not factored into unemployment estimates. People do not want to work because of the decreasing power of the real wage, but they will need to earn income in some way. There are two clearly foreseen outcomes. First, the employees’ need for money might take effect before the employers’ need for more labor, which would mean that people return to work without higher wages and better working conditions. Perhaps this could lead to political ramifications for the next election cycle. The other main possible outcome would be that the employers take action before the employees, resulting in the workers receiving increased wages, benefits and better working conditions. It will be interesting to see how this situation continues to play out over the coming months.

Edited by Jackson Pentz

Works Cited

Berger, P. (2021, October 14). Push to Operate L.A. Port 24/7 Off to Slow Start. The Wall Street Journal. https://www.wsj.com/articles/push-to-operate-l-a-port-24-7-off-to-slow-start-11634249513?mod=article_inline

Friesen, G. (2021, September 3). No End In Sight For The COVID-Led Global Supply Chain Disruption. Forbes. https://www.forbes.com/sites/garthfriesen/2021/09/03/no-end-in-sight-for-the-covid-led-global-supply-chain-disruption/?sh=102ed9063491

Newman, J. (2021, October 17). Unions Push Companies as Workers Stay Scarce. The Wall Street Journal. https://www.wsj.com/articles/from-film-sets-to-manufacturing-plants-unions-push-companies-as-workers-stay-scarce-11634488473?mod=Searchresults_pos2&page=1

O’Neill, R. (2021). How will the stimulus package aid state and local governments? Harvard Kennedy School. https://www.hks.harvard.edu/faculty-research/policy-topics/public-finance/how-will-stimulus-package-aid-state-and-local

The Editorial Board. (2021, October 17). Big Labor and the Supply Shortage. The Wall Street Journal. https://www.wsj.com/articles/big-labor-and-the-supply-shortage-united-auto-workers-union-strike-deere-company-11634336590?mod=Searchresults_pos1&page=1