Indeed, the Labor Department reported that 916,000 jobs were created across the American economy in the last month alone. Yet, the Fed has stated that a nation-wide shortage of truck drivers, skilled and unskilled workers, and even nurses has arisen. A recent survey by the National Federation of Independent Business found that 42% of small business owners said they had job openings that they could not fill.
How is this happening? One reason is that the federal government’s latest stimulus package has extended the $600 weekly increase in unemployment checks. This means many laid-off workers would continue to make less income if they were to successfully rejoin the workforce.
Consider that the average weekly unemployment check nationwide was $370 in the pre-Covid-19 economy of 2019. The federal increase of $600 a week raised that number to $970. Yet, the average weekly paycheck for full-time workers in the food industry in 2019 was about $500. American workers can easily do that math.
Bureau of Labor Statistics data reveals that, before the pandemic shut down in the first quarter of 2020, 164 million Americans were either working or seeking work. Today, that number is only 160 million. This 2.5% reduction in labor supply coincides with a nearly 30% increase in consumer demand. Fed data indicates that individual disposable income among Americans increased from about $15 trillion in March of 2020 to just under $20 trillion in March of 2021.
Kelly McCulloch, Taco Bell’s Chief People Officer, described the current situation succinctly. She told Business Insider that, “It’s a total nightmare… The most recent stimulus checks and unemployment benefits have been a catalyst for people to stay at home.”
How can we stimulate the economy without creating such labor market distortions? Perhaps reimburse the business owner instead of paying prolonged inflated unemployment benefits? For example, the British government is temporarily paying business owners 80 percent of their workers’ wages just to keep them on the payroll. The benefit of payroll subsidies to employers is not only rewarding continued labor force participation, but it also keeps the vital connection between businesses and their employees.
Econ 101 teaches us that when the supply shrinks, the demand grows for any commodity. The quantity made available often falls but the market price most certainly rises. The price of all American goods in the future may well increase faster than a two-by-four from Home Depot.
