Opinion

Labor shortages are good

If businesses have trouble finding workers, it just means they have to make a more enticing offer

American companies are running out of workers. From oil drillers in West Texas to restaurants in New England, companies are telling reporters they can't find enough people to fill job openings. We're told this will result in unfilled orders, untapped markets, and ultimately slower economic growth.

Allow me to offer an entirely different take: Labor shortages are actually good.

Obviously, they're extremely unpleasant for business owners. "We've got the biggest backlog of orders ever," one Iowa truck manufacturer told The Wall Street Journal. The company, which usually meets orders in eight weeks, now takes over twice that long.

But one big reason labor shortages are unpleasant is that they eventually force business owners to spend more to attract workers. This is basic supply and demand: If a resource is scarce relative to companies' need for it, its price will go up. Maybe companies have to raise wages. Maybe they have to increase benefits. Maybe they have to spend more to train employees. Maybe they have to improve productivity and efficiency.

Point being, it's an instance where what's bad for business owners is good for workers.

During the mid-century boom years after World War II, the unemployment rate was actually significantly lower much more often than it's been post-1980. But this was not a time of sluggish growth and kneecapped companies. It was a period of robust economic growth and, compared to today, widely-shared prosperity.

What's remarkable is how resistant many company owners are to admitting this. They posit all sorts of possible remedies to labor shortages, from increasing hours to using more robots to partnering with schools for training programs. But simply biting the bullet and paying more per hour rarely comes up.

The idea that wages can't rise, that some jobs must always be low-pay, is often taken as a given. "For some lower-paid jobs that are undesirable, a lot of Americans don't want to do those jobs," Ray Wiley, a recruiter who focuses on placing refugees and immigrants in employment, told The New York Times. "The jobs they offer are in out-of-way places," the paper elaborated. "The work is low-paid and disagreeable; and native-born Americans, particularly white men, are generally not interested."

Notice the pro-owner and anti-worker framing: The pay is what it is. That it could change is not even mentioned. By implication, workers that won't accept their offer are unreasonable, maybe even entitled or lazy.

Reporters actually have a bad habit of presenting immigration as the solution to labor shortages. No doubt, this frame is well-intentioned. It functions as a pushback against xenophobia, explaining how decency towards immigrants and refugees can even help the economy. But it contributes to the idea that we all just have to put up with low pay forever, and also implicitly presents immigration as a tool for keeping wages down. It also demeans immigrants themselves: They are "better" or "more desirable" because they don't inconvenience their employers by demanding better pay or conditions.

This is just one example. But the point is much broader: American businesses seem to think they're entitled to low-cost, un-troublesome labor.

They probably think that because it's what they're used to. Economists try to calculate how low unemployment can go without sparking ever-rising inflation. These official estimates almost certainly set the floor for unemployment much too high. But even as it stands, the unemployment rate has only been below that threshold 35 percent of the time in the last 20 years.

In other words, for the last few decades, labor has been a buyer's market.

Business surveys do show that more companies are hiking wages than at any point in the last 18 years. But that's coming off the brutally low baseline of the Great Recession. Nationally, wages are growing at 2.6 percent annually. That's the fastest they've increased since mid-2009. But it's still well below the 3.5-to-4 percent range we achieved in the late 1990s and in 2007-2008 — the last two times unemployment got as low as it is now.

Part of the disconnect is regional variation: Job openings modestly outpace the number of unemployed individuals in the Midwest, while unemployed workers still outnumber job openings nationally.

But the design of government statistics also plays a role. To be treated as unemployed at all, you must have actively looked for work in the last month. Otherwise you're not counted as part of the labor force. But the rate of labor force participation collapsed after the Great Recession, and the rising population of retirees is not enough to explain the fall. This suggests the economy has been so bad for so long that lots of people just gave up.

In fact, over 70 percent of newly employed workers in January said they were not actively searching for work the previous month. Meaning they wouldn't have been counted as among the unemployed at all. And that percentage is the highest that number's been in at least the last 25 years.

For a long time, it's just been normal for a sizable pool of Americans to be unemployed. That's allowed employers to be super picky about who they hire, without having to inconvenience themselves with pay hikes or other efforts to attract employees. Now the economy is finally beginning to shift power, ever so slightly, back in workers' favor. But employers are having trouble adjusting their outlooks and attitudes. Lulled into complacency and hypersensitivity, they're panicking at the slightest hint of inconvenience.

"Are any of you planning to raise wages in the next year or two?" Minneapolis Federal Reserve President Neel Kashkari asked a gathering of business leaders last year. "Or are you just complaining about you can't find workers?"

He added: "If you're not raising wages, then it just sounds like whining."

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