The truth behind America's labor shortage is we're not ready to rethink work

Workers were tired before the pandemic. Now they're reaching a breaking point.

"These guys are just foolish if they actually think that the UI is the problem and not the wage," Matt Mies, an unemployed 28-year-old, told Insider.

He was referring to the dozens of Republican governors who have cited a so-called labor shortage, which they've blamed on the "disincentive" created by an expanded federal unemployment benefit from President Joe Biden's stimulus package. The leaders, who govern nearly half of the 50 states, have moved to cancel the benefit early, stripping it from millions within weeks.

Economists had largely expected jobless Americans would rush back to work as vaccines rolled out and the country reopened, but that all changed on May 7, when the government's monthly payrolls report showed much-weaker-than-expected job gains of 266,000 in April. That seemed to confirm the labor shortage was real.

Mies, who was a ground-crew worker in Hollywood before the pandemic, said most jobs like his had moved out of the area, but that's not the problem. "I just think that UI has just at least fixed everyone's brain enough to see how messed up the wages are," he said.

He was one of several unemployed Americans Insider spoke with who said the "labor shortage" was an opportunity for America to rethink what work looks like. They said they weren't looking to go back to the way things were, and millions more may agree with them - about 10 million Americans are unemployed, compared with right before the pandemic.

Some jobless Americans say it's as simple as wanting higher pay after years of declining buying power. For others, expensive childcare and health issues are placing work lower on their list of priorities. Americans are also looking for better labor conditions after working from home sparked a societywide reassessment.

The president wants this rethink to happen. "Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract workers," President Joe Biden said in a speech. "That kind of competition in the market doesn't just give workers more ability to earn a higher wage, it gives them the power and demand to be treated with dignity and respect in the workplace."

But the opposite view is that work should and will go back to what it was in 2019, and the wages on offer aren't up for negotiation.

"What has happened in our society, where a paycheck isn't enough incentive to go to work?" Republican Sen. Ron Johnson of Wisconsin told Insider. "We supplanted that incentive with the incentive to stay home, and we need to end that incentive."

Johnson also dismissed the idea that businesses needed to raise wages, saying, "Why would anybody need an additional incentive to go to work? The incentives have always been there: to take a paycheck, to have the dignity of earning your own success and providing for your family."

Those incentives may no longer be attractive enough. Economic data suggested that while demand for workers was robust, Americans didn't seek out work as experts had anticipated they would. Job openings soared to a record-high 8.1 million in March as more businesses looked to hire through reopening. The food-services and accommodation sectors - two of those hit hardest by the pandemic and related lockdowns - added the most openings. Yet the April jobs numbers showed little of that demand being serviced.

Work needs a rethink, but the country isn't ready for it.

Pay was too low well before COVID-19 struck

For decades, the typical American's wage growth was weak by historical standards. The situation was dire even before the global financial crisis and the slow subsequent recovery, which lagged expectations and left millions unemployed for years. Economic growth stagnated, and below-target inflation hinted the country was saddled with consistently weak demand.

Then the virus hit.

Low-wage workers were sent home by the pandemic, and if they were able to successfully navigate the unemployment system, they had a steady income, no inconsistent schedules, and life away from occasionally demanding customers. Thank the US government's massive stimulus spending - roughly $5 trillion - for that big reset.

There is strong upward pressure for wage for the first time in decades. Federal Reserve Chair Jerome Powell said ahead of the April jobs report that wage growth would be a telling sign of a "really tight labor market." And grow, wages did. Average hourly earnings rose $0.21 in April alone, roughly doubling the typical one-month increases from before the health crisis.

"Everybody should get a living wage," Scott Heide, an unemployed 35-year-old in Florida, told Insider. He said people getting more money staying home than working was "outrageous," but not for the reasons that labor-shortage critics cite. "I think if employers paid their employees a living wage, that would make a huge difference," he said.

Heide was referring to what economists call the reservation wage, which tracks the wage levels at which Americans would take jobs. The reservation wage for workers without a college degree jumped 26% year-over-year in March, according to the Federal Reserve Bank of New York. That compares with average annual growth of about 2% over the past six years. The wage now comes out to $29.56 an hour, compared with an hourly rate of $23.45 just one year prior.

The data made it clear: Americans wanted better compensation for their work, and they were willing to wait for it.

It's not just low wages dragging on the labor market's recovery. Some studies show that childcare and COVID-19 fears from older people are more to blame for labor shortages than enhanced unemployment. Experts previously told Insider that it was a new phase of recovery, where the need for parents to have a safe place to drop off their children is becoming even more clear.

Karen Lucas, a 53-year-old single mother in Pennsylvania who is unemployed, said unemployment benefits were addressing childcare costs and that's an important reason people have stayed out of the workforce.

"If my children were, let's say, 5 years old - thankfully they're 16, so they're independent - I would not be able to work," she said. Twelve years ago, she said, she paid over $1,600 a month for her children's care.

When it comes to those parents opting to stay home, "I can't fault them. I don't think it's a bad decision. If I were a parent with 5-year-olds, you better believe I would be doing that," she said.

She said the situation showed the need for businesses to provide childcare or childcare incentives for their employees.

The unemployment benefit changed how some Americans view work

The only thing Mies misses about his old Hollywood job is the paycheck.

He's still working as a technical director for a nonprofit theater organization that serves people with disabilities, which he said he's always enjoyed more than his other work. During the pandemic, he was able to get a small paycheck from them - he hadn't been paid before then - but was able to remain on unemployment. At its peak, he said he made about as much on unemployment-insurance benefits as he had before.

That made him realize he was working himself "to the bone," he said, adding that he wanted to return to work, but not hard labor for long hours.

Even after the weekly federal supplement shrank to $300 from $600, the aid program was still competitive with low-paying jobs across the country. The combination of state UI and the federal boost surpassed the average wages of Montana, North Dakota, and Wyoming, Insider calculated, and in the rest of the US, unemployment benefits replaced an average of 76% of states' average wages.

While UI might not deter Americans from work, it encouraged many to seek more rewarding jobs - or, at least, work in different fields. In February, 66% of unemployed Americans in a Pew Research Center survey said they had "seriously considered changing their occupation or field of work."

Separately, Insider's Mary Meisenzahl reported on retail workers leveraging the labor situation to leave their old jobs - and the drain that came with them - for better-paying positions. The drain was likely extreme. Research from the advocacy group One Fair Wage found that female tipped workers experienced more harassment and lower tips during the pandemic.

Wage hikes at large-scale employers, from Amazon to Chipotle, suggest businesses faced at least some pressure from the government benefit, and from a large first mover on raising wages, the tech giant Amazon.

Larger structural shifts and a September 'fiscal cliff'

Other sectors, like academia, may see more of a structural shift on the other side of the pandemic. In the past year, higher education lost an unprecedented 650,000 jobs, Dan Bauman at The Chronicle of Higher Education reported, citing estimates from the Labor Department. That could represent a major sector emerging from the pandemic permanently disjointed - with a lot of collateral damage.

Jennifer fears she is one example. She's 42 and lives in southern Virginia. After finishing her Ph.D., and starting a new job in January 2020, she felt she was on her way up in the world. Then the pandemic hit, and her job was gone in March.

It took months to finally get the call she needed to receive her unemployment benefits. She said she had been surviving for six months off credit cards.

Throughout her time on unemployment, she said, "there's been no highs, with quite a few lows." About every three weeks, she panics about her situation, she said, "because I accidentally take a bird's-eye view of my life and it's terrifying."

She said she was "frozen in time." Every day, she wakes up, logs on to her computer, and searches for at least two jobs that she can apply to.

"I manage to wake up every single day saying it could be today, could be today. I could get that email. I could get that phone call. It could be today."

Such validation needs to arrive in the next three months at the latest. Even in the 27 states that haven't prematurely ended the federal UI benefit, the boost is set to lapse in September. That includes programs like Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation, which extended eligibility for benefits and the number of weeks people could receive them. When both of those vanish, their recipients will no longer have any UI.

Payment freezes, such as the federal eviction moratorium and a pause to student-loan payments, will also expire in the fall. This spate of deadlines has been referred to as a "fiscal cliff," with millions of Americans on the brink of losing several forms of economic relief.

Jennifer's experience shows that work may not be rethought for everyone who needs it. "The last thing I want is sympathy," she said. "I'm just so angry. I need someone to validate that I'm a human being."

 

This article was written by Juliana Kaplan and Ben Winck from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.