Here’s the truth about the labor shortage

There are countervailing storylines that complicate the pandemic recovery. Millions of Americans remain unemployed while companies big and small are reporting extreme difficulty in finding workers.

That’s prompted a push by Republican governors — 22 so far — to reject the $300-per-week unemployment benefits that were included in the Democrats’ Covid relief bill this past March.

The pandemic benefits run out in September anyway, so these states are turning down money the federal government has already approved, cutting off money earmarked for more nearly 2 million out-of-work Americans.

The idea is that, with the economy reopening thanks to the vaccines, the boosted checks might be keeping workers on the sidelines — and taking them away will essentially force them back into the job market. That would help smaller businesses that are not as well equipped as larger companies to draw workers with higher pay or other perks.

There’s something of a Rorschach test here. You can look at the plight of business owners and think the government should cut support that’s making it hard for them to hire. Or you can look at a person whose wages are normally low enough that $300 per week is enough to keep them out of the labor force and think maybe businesses should raise pay.

I went to Anneken Tappe, the senior writer at CNN Business who covers the US economy, to get her thoughts on the labor shortage and what’s behind it. Our conversation was conducted by email.

Is there a labor shortage?

WHAT MATTERS: Republican governors are rejecting expanded federal unemployment benefits for their citizens because they say there is a labor shortage; restaurants can’t open, goes the storyline, because workers would rather collect unemployment and not work. What’s really happening?

TAPPE: America’s labor market is in a weird spot. On the one hand, some employers just can’t find workers to stem rising demand for goods and services. Meanwhile, millions of people remain unemployed or out of the labor market (which means they aren’t actively looking for work). As of April, America was still down 8.2 million jobs compared to February 2020.

So what gives?

Millions of American workers still need the enhanced unemployment assistance, which provides an additional $300 per week. It is earmarked to end in September. Research from Bank of America recently found that the pandemic-era benefits indeed do keep people from looking for work — but only if people made less than $32,000 per year before, which is less than half the national median income. For these low-income workers, it makes sense not to work but to collect benefits, while for higher-income earners it doesn’t.

But income might only be one part of the puzzle. Workers still have to weigh health risks and care obligations against a return to work.

Who is having trouble finding workers?

WHAT MATTERS: Which industries are hardest hit? And how is that affecting the re-opening?

TAPPE: One industry that is particularly affected by a shortage of qualified personnel is manufacturing. Potential employees are concerned those jobs could be outsourced or replaced by machines.

As for the claim that restaurants can’t open because workers would rather stay home, the data isn’t really showing that. In April, the hospitality sector added 331,000 jobs, half of which were in restaurants and bars. No other sector even came close to adding that many jobs. Still, the sector is still down 2.8 million jobs compared to pre-pandemic times, so economists expect more jobs to be added over the coming months.

Why don’t companies raise wages?

WHAT MATTERS: The counter-argument is that workers in less desirable jobs are underpaid. I’m no economist, but couldn’t companies just pay workers a higher wage to bring them into the work force?

TAPPE: That’s actually already happening. The reopening has spurred demand from consumers and many companies have a hard time keeping up with demand so they’re raising wages to attract workers. Under Armour Wednesday announced it will bump its US minimum wage from $10 to $15 an hour to compete in this confusing labor market, which means a pay rise for 90% of the company’s store and warehouse staff.

Amazon, Walmart, Costco, McDonald’s, Chipotle and others have also increased certain wages.

Bank of America went a step further Tuesday and announced it would lift its minimum wage from $20 to $25 per hour.

Is a lack of access to child care — including camp and in-person school — keeping women out of the work force right now?

WHAT MATTERS: You’ve written about how lack of child care during Covid and start-stop returns to public schools has affected both companies who want to bring workers back and workers who can’t figure out where to put their kids. Is that a large enough issue to affect the labor market?

TAPPE: It’s hard to tell right now. One challenge with the pandemic-era labor market is that it’s evolving very quickly but while we might see rapid improvements on one end, problems persist elsewhere.

We know that last September, when school started again after the summer break, hundreds of thousands of women dropped out of the labor force (meaning they are not looking to return to work) because of child care obligations at home. Now that offices are reopening again but daycares and schools are not fully back up and running again, this is creating a similar problem for some parents.

The jobs recovery is chugging along anyway, though we’re still far from back to normal. Time will tell how the child care problem in this time affected parents, and particularly mothers, in the workforce.

Inflation is making everything more expensive

WHAT MATTERS: The other economic issue we’re hearing a lot about is inflation. Everything is getting more expensive. That’s worrying given how many people are still unemployed, right?

TAPPE: Inflation is rising because Americans are spending more money again. In principle that’s a really good thing because the US economy runs on consumer spending, so every dollar counts. The Federal Reserve, as well as economists, predict that prices will keep rising this summer as the economy fully reopens and people spend on things like traveling again, before they eventually normalize. One worry is that prices will rise so fast that they discourage people from spending. That would be really bad news for the recovery, but so far there is little indication of that happening.

Related: What does it mean if the economy is overheating?

That said, it is true that higher prices are just the latest effect from the pandemic that is hitting lower-income workers harder than others.