At a Cincinnati town hall meeting in July, a local restaurant owner complained to President Biden about how hard it was to find workers even though millions of Americans remain unemployed. Not exactly striking a sympathetic note, Biden told the restaurateur that he expected enterprises like his “to be in a bind for a while,” because “I think it really is a matter of people deciding now that they have opportunities to do other things.” The president didn’t explain what those “other things” might be, but he clearly didn’t seem worried, even though the recovery from the 2020 recession was already sputtering as millions remained unemployed and businesses frantically searched for new hires. While some industries report shortages because their workers are trading up to better jobs elsewhere, America’s work-participation rate—the percentage of adults holding jobs—has plummeted. In the process, the widespread worker shortages of mid-summer have gotten worse.
Back in July, the federal government was still paying enhanced benefits to the unemployed—even though many in Washington, including prominent Democrats, were warning that the federal handouts on top of state unemployment payments were creating a big disincentive to go back to work. That extra federal payment, which had begun under President Trump and was extended by Biden last March, finally ended in early September, but other federal aid continues. The IRS, for instance, now pays families a child tax credit that has expanded to $3,600 per child under six and $3,000 per older child. A recent study estimated that this lucrative benefit, if it becomes permanent as some Democrats have proposed, could prompt up to 1.5 million more mostly low-income parents to leave the workforce over the next few years. Meantime, the Treasury Department has told states that they can use some of the $350 billion stimulus money Washington was sending them to support and expand their own unemployment benefits.
Even before the Covid-induced recession struck, public policy in America had been increasingly discouraging work through expanded and more generous disability payments, longer bouts of enhanced, less restrictive unemployment benefits, and more generous social-welfare payments. One consequence: the ranks of the permanently unemployed have grown in America. In the last 20 years alone, the country’s labor-participation rate shrank from nearly 68 percent of adults to just 63 percent right before the Covid lockdowns began. Then in March 2020, the rate slipped below 61 percent—an unprecedented drop. Since then, it’s climbed less than halfway back to pre-Covid level, despite widespread business re-openings and help-wanted signs everywhere. More people are getting used to not working, and the Biden administration’s proposals for expanding federal aid programs will do little to lure them back.
That’s apparently fine with Biden and his economic advisors. Far from being horrified at the growing number of permanently out-of-work Americans, the administration sees worker shortages as a way to achieve one of its primary economic goals: raising wages. Biden campaigned on boosting the federal minimum wage to $15. He knows he’ll have a tough time pushing that legislation through Congress, even with Democratic control of both houses. This is why administration members have been hinting to the press that widespread shortages are a good thing because they are boosting salaries for those who are working—even while others who formerly worked go off and do “other things.”
On October 8, for instance, the president responded to a disappointing September jobs report by noting that his economic agenda was working because of robust wage increases. At the July town hall, Biden had similarly said that if businesses wanted to find workers, they’d have to pay them more. He noted that big retailers have boosted starting wages to $15 an hour. When asked what he might do to help smaller firms shoulder those kinds of costs, the president pointed to the billions of dollars in aid to small businesses that the federal government is handing out. He thus explained the calculus in Washington now: make it harder for businesses to hire workers by forcing them to compete with generous government benefits, then subsidize higher wages by sending federal aid to firms (at least, to those who can navigate the federal bureaucracy). That’s Biden’s new route to a higher minimum wage.
One of the ironies of the July town hall in Cincinnati was that Biden was there to visit a union training facility so that he could tout his infrastructure plan as the basis for creating millions of “good” jobs. In other words, the president was pitching a speculative $2.3 trillion spending program using government money, which would allow him to dictate through federal mandates the terms of hiring in the resulting job market—even as he dismissed the concerns of business owners in the town hall audience who had jobs available right now for which they could not find workers.
Biden’s strategy poses many dangers. The obvious one is inflation, which has already stoked fears of long-term rising prices, despite Biden officials’ expectation that the current inflation spike will be “transitory.” In September, inflation picked up again, marching ahead at an annualized rate of 5.4 percent. Already, workers are seeing the sharp price increases cut into their wage gains—the inevitable result of trying to create higher pay by means of labor shortages. The Social Security Administration recently announced that because of surging inflation it would raise benefits by 5.9 percent next year. That’s the highest annual cost-of-living increase since Federal Reserve Chairman Paul Volcker wrestled with inflation in 1982. While the benefit increase might be a consolation for retirees, it’s indicative of the threat to the economy going forward.
At the same time, the dearth of workers is creating longer lines and shorter operating hours for firms, inconveniencing customers and threatening to reduce economic productivity. A recent survey by the National Federation of Independent Business found that 51 percent of owners said that they had job openings they couldn’t fill. That’s the highest level in the 48-year history of the survey—22 percentage points above the historical average. News accounts are increasingly filled with the consequences of these shortages for the economy—and it’s not just “nonessential” businesses that are suffering. A Las Vegas newspaper recently recounted the experience of shoppers visiting a Walgreens, which was closed with a sign taped to the door: “Due to a staffing shortage, the store is closed and will open tomorrow at 7 a.m.” At a nearby Albertson’s supermarket, consumers found long lines at checkouts and lots of inventory sitting unpacked in the aisles rather than on shelves. Asked about the situation, an employee said that the store had held a job fair and only two prospective employees showed up.
The problem is national. In a survey earlier this year, 80 percent of pharmacy operators said they were having trouble finding workers. And it’s not just lower-paid clerks. Some nine out of ten stores said they couldn’t find trained pharmacy technicians.
The Biden administration insists that enhanced benefits were not adding to the shortages, but business owners have said that many people show up for interviews—which some states require them to do as a condition of receiving unemployment—and then decline job offers. In late September, the Albany Times Union reported on several cases that businesses said represent the continuing trend of workers with benefits turning down jobs, including a woman who bluntly told an employer she would work fewer than 20 hours a week so that she could continue to qualify for unemployment.
There’s no doubt, of course, that the pandemic has contributed to the shortage. The job pool has suffered from a spike in retirements by older workers who have decided not to bother coming back as companies reopen. Businesses say experienced employees are leaving to take jobs elsewhere as firms battle over talent. And some people have balked at coming back to work because of Covid fears. These realities have worsened what was already a troubling trend. Recently, a columnist for Yahoo finance, contemplating the “jaw dropping” decline in work-participation rates among men that preceded Covid, outlined factors behind it. He identified more liberal government handouts—including enhanced unemployment and more generous disability—as part of the problem, but other causes include more people working off-the-books for cash, a burgeoning illegal economy led by the drug trade, and more young adults supported by their parents. “It seems like working legally to provide for yourself in America is really just one option these days,” he wrote.
Though government is not by any means the sole cause of this problem, the idea that the Biden administration wants to expand the very policies that contribute to an unwillingness to work, rather than try to reverse the tendency—by, for instance, tying government benefits to work, as Congress did with welfare reform in the 1990s—is troubling, and not merely because of the economic consequences. Work is more than just a way to earn a living. Despite the fantasies of those on the left who argue that policies like a universal basic income will free us to pursue our “passions,” studies consistently show that those who don’t work are much less happy than those who do, are more prone to depression and addiction, and are less likely to be successful at forming relationships and raising families.
But, heck, we’ll get a $15 minimum wage in the meantime, so everything will be fine—right?
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