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Labor shortage or employer intransigence on wages? Yes, and yes.

Photo by Tim Mossholder on Unsplash
Ike Levin
May 20, 2022


So maybe we’re in a labor shortage, and millions of Americans are able to work but have chosen not to reenter the workforce since leaving it at some time during the last 26 months. Or – Maybe we’re not in a real labor shortage, and employers simply aren’t raising wages and improving working conditions enough to buy the labor that they need. Which is it?

The answer is that it’s all the same thing.

Everyone from neo-Keynesian economists to labor pundits have emphasized that what we are experiencing now is not a true labor shortage, because in a labor shortage, there are not enough workers in supply in a given economy to meet the amount of labor demanded for producing goods and services in that economy. According to this commentary – of which Minneapolis Fed President Neil Kashkari’s latest media blitz is a prime example – employers are claiming there to be a labor shortage where there is none. Kashkari says that calling the current situation a labor shortage lets employers off the hook for refusing to adequately raise wages and/or improve working conditions.

It seems like this debate unfortunately has been saddled by a tiff over semantics, obscuring the real disagreement over what must be done. And as a result, many employers may be left feeling extremely unconvinced. Of course there’s a labor shortage, many say. I can’t hire enough workers!

An absolute shortage of workers means there will be no amount of wage increases or changes in working conditions which can result in employers’ demands for labor being fully met. This is the type of labor shortage those commentators are referring to when they point out we’re not in a true labor shortage. But if we might do away with economics departments’ disputes over terminology for a moment, we can say that we are obviously, of course experiencing a labor shortage. But not an absolute shortage, unable to be fixed by employers. Rather, a labor shortage induced by low wages and poor working conditions. Or, in hiring manager terms, employers are offering working conditions and pay + benefits whose value to the worker is lower than what it costs that worker to accept such work. Employers who have refused to understand how dramatically economic conditions have changed in the last two years will continue to be left frustrated and without a solution to their hiring crises.

What is this labor shortage due to? Is it the actions of workers, or the actions of employers, or both?

Well first, it’s always both. Always. No economic transaction takes place without the participation of at least two parties. But that doesn’t tell us how to fix this crisis.

So, is the current labor shortage due to the actions of workers? What if the subset of workers who’ve left the workforce since March of 2020 and have yet to return were to think about it, and decide to accept the wages and working conditions that employers trying to staff their vacancies are offering them? Yes, of course the labor shortage would be brought to an end. So why aren’t workers doing this? And can they be convinced to? 

Take this story from WCPO 9 Cincinnati, running one of the first local TV news reports on the U.S. labor shortage on April 20, 2021. An owner of three hip looking restaurants in downtown Cincinnati tells us, “It’s actually hard to find people to work.” The owner of a pub in small town exurban Cincinnati tells us, “It’s frustrating. You can’t get people to show up. You can’t hire people.” 

Now why on Earth would it be that many industries are doing just fine staffing their companies, while other industries like restaurants continue to not have success in hiring?

LONG TERM STRUCTURAL FACTORS

As we’ve looked at previously on this blog, long-term structural changes in the labor market occurred during the COVID-19 pandemic, changes which have created the current labor crisis. The largest factors keeping millions out of the labor market are lack of childcare, poor health and disability, and a lack of willingness and/or ability to conform to harsh, dehumanizing working environments. These realities make for a clear explanation as to why the complaining, moralizing, scolding, and indignation of some employers and most of the mainstream media towards workers has not and will not yield results, especially as wage increases are outpaced by general inflation.

The ubiquity of at-will employment and historically low union density also mean that for workers, there is almost no market power with which to set wages and working conditions. That market power lies with employers, who have near unilateral authority over compensation, benefits, and conditions. We reside in a capitalist society, one whose economic forces – allocation of resources through the interaction of supply and demand – are largely determined by the market. This is not in dispute! But unfortunately for us all, and for short-term prospects for economic stability, many employers seem to have forgotten how this system works. There is no shortage of workers capable of doing these unfilled jobs, if employers are willing to make it worth their while.

Any plan for action (if that’s indeed what we want) requires good reason to think the plan is achievable. Has scolding workers suffering from health issues, or criticizing workers who won’t tolerate being mistreated in the workplace any longer, convinced them to return to work? Through rhetoric alone? It has not. Will the rhetoric have the effect of improving those repressive working conditions? It will not. 

So what can be done, and who can do it? Bottom line: Employers can raise their wages and treat their workers with dignity and respect, and maybe even give them some say in production. These are the things with the potential to end this stalemate – wage increases and alleviation of harsh working conditions in particular. Individual workers can’t do it, so we should find ourselves damn lucky that employers can. Employers, the ball is in your court.

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