What’s Next For the U.S. Labor Market?

Employers are claiming that “no one wants to work anymore” because generous COVID-related unemployment benefits have led to a nationwide shortage of labor. How true is this, really? 

It is true that workers have not fully returned to the labor force, with 4.3 million fewer people in the labor market than there were pre-COVID (Mitchell et al., 2021). Restaurants and hotels, in particular, seem to be understaffed, with “now hiring” signs everywhere.

However, studies show that unemployment benefits may have little to do with this “labor shortage.” Researchers have found that the termination of the CARES Act’s extra $600 unemployment benefits did not lead to job gains (Dube, 2021) and that “workers facing larger expansions in UI benefits have returned to their previous jobs over time at similar rates as others” (Altonji et al., 2020). Furthermore, pandemic-related unemployment benefits ended in early September, while other states chose to end them earlier (Friedman, 2021). Some have argued that COVID welfare has cushioned household savings and thus given people greater freedom to quit their jobs (Leonhardt, 2021b), but there is still significant doubt surrounding whether or not savings has actually increased for those earning less than $25,000 per year (Hoff, 2021). 

Although the reason for this hesitancy to rejoin the workforce is unknown, it is clear that workers are no longer as willing to put up with low wages or poor working conditions as they were before the pandemic. It is possible that the pandemic –– during which 70% of Americans employed in outdoor jobs worked at their own risk without hazard pay (Economic Policy Institute, 2020) –– made workers realize that they were being undervalued. 

“Many, many people are realizing that the way things were prepandemic were not sustainable and not benefiting them,” says Rachel Eager in a New York Times interview shortly after quitting her job (Leonhardt, 2021b). 

Workers are fed up— and if they’re not quitting, they’re striking. According to Cornell’s strike tracker, there have been 181 strikes so far this year, “with 38 strikes just in the first two weeks of October” (Isidore, 2021). This includes workers from Kellogg’s and John Deere as well as a large number of healthcare working individuals. Kellogg’s workers are protesting seven-day workweeks (Isidore, 2021) and a tiered hiring structure in which the lower tier gets half the pay and no benefits (Moore, 2021).  Workers are not just striking for better wages or benefits, but also for better working conditions such as weekends off, meal breaks, and, as Chris Isidore of CNN Business puts it, “to gain basic improvements in the quality of their lives, such as time with their families, which they say they deserve” (2021).

Though Isidore probably did not intend it this way, “which they say they deserve” suggests that the dignity of workers in this country is not a given. It’s not hard to see why. The relationship between employers and employees has favored employers for 40 or so years. 

Figure 1

Figure 1 illustrates how wages have barely increased in comparison to company profits since the early 2000s. Wages have grown slowly and marginally for everyone except the affluent, as shown in Figure 2 (Leonhardt, 2021a), while corporate consolidation has increased (Leonhardt, 2018) and labor unions have shrunk (Dynarski, 2018), giving employers the upper hand. 

Figure 2

Furthermore, if wages kept up with GDP, the median salary would be about $100,000, about double what it is now (Akhtar, 2020). If wages kept up with productivity, the minimum wage would be almost $26 an hour (Baker, 2021)— much higher than the current federal minimum wage of $7.25. $7.25 an hour is not a living wage in any state, and for a family of four, neither is $15, as shown in Figure 3 (Iacurci, 2021). Starvation wages have been the norm in America for a while, so it is understandable that employers are unaccustomed to worker leverage.

Figure 3

Though employers aren’t used to it, the easy market solution to a labor shortage is, as a matter of fact, to raise wages. Some companies— such as Bank of America, Amazon, Costco, McDonald’s, and Chipotle— have indeed done this (Leonhardt, 2021a), though they, or the media, are doing their best to pretend that they cannot. For instance, it was reported that Chipotle “hiked menu prices by roughly 4% to cover the cost of raising its workers’ wages,” despite the article itself saying that “the timing of the price hikes coincides with rising ingredient costs across the restaurant industry as suppliers grapple with the return of demand” (Lucas, 2021). Lucas also did not mention that before Chipotle decided to raise its wages to an average of $15 an hour (not a minimum) (Lucas, 2021), its CEO got a pay raise of $23 million (Kilgore, 2021). Thus, we should look at anxieties about raising wages with a healthy dose of skepticism, especially when it comes to large corporations. For instance, Pollo Tropical reported that increasing wages and benefits has almost eliminated their staffing problem (Dean, 2021b).

However, it seems like many employers are doing everything they can to avoid raising wages. Restaurants are cutting open hours, employees are being asked to take on more responsibilities and work overtime, and hotels are cutting down on housekeeping services. Furthermore, businesses are turning to automation, such as self-checkout machines, in order to replace workers (Mitchell et al., 2021). Wisconsin’s Senate has even turned to expanding child labor, proposing a bill to allow 14 and 15-year-olds to work later and “help plug the state's labor shortage” (Dean, 2021a). 

With companies acting allergic to raising wages, it’s hard to say if this year represents a shift to a new paradigm of labor. Workers may hold off on accepting low wages until they run out of money, but businesses may hold off on raising wages until being perpetually short-staffed starts costing them customers. Thus, this new era of tight labor markets might only last if the worker leverage we’re seeing right now is crystallized into public policy, such as protections for organized labor, subsidized child care, and higher minimum wage (Leonhardt, 2021b), some of which is in the Build Back Better bill that’s currently struggling to get through Congress (Wilkie, 2021).

Edited by: Andrew McArthur

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