Contrary to the articles, news clips, and Facebook posts you’ve probably seen this summer, there may not be a labor shortage in the US right now — at least not in the strictly literal sense. According to the Department of Labor, there was a 5.2% unemployment rate in August, significantly down from the peak pandemic unemployment of 14.8% but still almost 2% higher than the January 2020 unemployment rate. As you can see, it’s not that there aren’t enough workers. Rather, employers in certain sectors are having difficulty attracting workers under pre-pandemic conditions and assumptions.
The pandemic has caused a severe disruption of the labor market and economy as a whole after entire sectors were shuttered for months in a series of rolling lockdowns. Moreover, the leisure and hospitality sector was hit particularly hard by the pandemic and is the area with the largest jobs deficit right now. Clearly, pre-pandemic models of hiring and employee retention strategies no longer work.
But if there’s not an overall labor shortage, why are these specific industries having such difficulty finding and retaining workers?
No, unemployment benefits are not deterring people from returning to work.
First, it’s important to address one common misconception: increased unemployment benefits are not deterring people from returning to work.
Several rigorous studies have concluded that state and federal unemployment benefits have had negligible effects on overall job gain or job loss. The Tobin Center for Economic Policy at Yale University found that there was absolutely “no evidence that more generous [unemployment] benefits disincentivize work.” These researchers also determined that workers who were receiving expanded unemployment benefits returned to their previous jobs at similar rates as those who did not receive comparable benefits. Similarly, a study conducted by the National Bureau of Economic Research concluded that “employers did not experience greater difficulty finding applicants for their vacancies after the CARES Act, despite the large increase in unemployment benefits.”
Still not convinced? Perhaps the strongest piece of evidence against this misconception is that cutting these unemployment benefits, as many states did in 2021, did not increase job growth. In fact, states that didn’t cut unemployment benefits have experienced greater job growth since April than the states that cut benefits — particularly in the leisure and hospitality industries. Some employers are counting on the September 5 termination of the Federal Pandemic Unemployment Compensation, which gave an additional $300 weekly to unemployed Americans, to bring their employees back to work. However, previous trends indicate that this will not be the case.
The idea that unemployed workers have become rich off unemployment benefits and are lazier than before the pandemic is simply not true. If you are entering your labor search with this mentality, you are doing your company a grave disservice. Without understanding the real reason workers aren’t applying to your openings, businesses won’t be able to remedy this problem.
Workers want higher wages, better benefits, and better working conditions.
So why are many businesses having labor issues? This may seem obvious, but the months that many service sector employees were out of work due to the pandemic have given them time to reflect on what they want from a job. Some people may not rejoin the workforce for some time. Many are struggling with caregiving responsibilities exacerbated by school closures. Others may be concerned about the health risks associated with working in the service industry due to potential exposure to COVID-19. For those who do want to return, there is now a serious mismatch between what workers want and what employers are willing to give them.
To start, workers want higher wages.
There is ample justification for this desire. Service industry jobs are inherently riskier now than before the pandemic, and this risk will only grow as the Delta variant spreads. Restaurant workers are in a particularly bad position, as lower patronage of restaurants during the pandemic means fewer tips. Thus, base wages for restaurant workers will need to be increased for workers’ incomes to return to pre-pandemic levels — and that’s before you even begin to account for the necessary rise in wages due to increased risk.
The market has already begun adjusting to this new reality. For example, in an effort to retain workers, Walmart, the nation’s largest employer, is raising the hourly wages of over half a million employees on September 25. Walmart’s average hourly wage will rise to $16.40 and their minimum hourly wage will increase from $11 to $12.
Workers are also demanding better benefits and better working conditions.
Service sector jobs often take a physical toll and many do not offer health insurance. While there has long been an underlying desire for improved benefits and conditions, the current labor market gives new strength to these demands since many former leisure and hospitality workers have shifted to working in other sectors and do not intend to return to their former positions.
Many companies have already been forced to offer enhanced benefits and improved workplace safety. Tyson Foods, whose factories have been the sites of numerous industry-disruptive COVID-19 outbreaks during the pandemic, is now offering additional PTO for vaccinated workers.
The problem is not just attracting new workers, but also retaining current employees. Across all sectors, restaurant and hotel workers lead the way in resignations. Around 5% of the entire workforce of these industries quit during every month of 2021 so far. Employers need to meet worker demands if they intend to reverse this trend.
What does this mean for businesses?
There’s more good news than bad! The good news is that job growth has been strong for most of the summer, and although the Delta variant has weakened this trend it will likely not reverse it. While the phrase “labor shortage” is misleading when looking at total employment, industries like leisure and hospitality are facing real difficulties hiring new employees. Luckily, there is a solution to this problem, though it might not be the return to pre-pandemic normalcy that many businesses were hoping for. At Fortuna, we are constantly looking for ways to usher in a new sustainable hiring system for businesses to address the changing needs of potential employees.
Instead of incorrectly blaming government benefits or workers’ alleged newfound laziness, businesses should view this as the free market correcting itself by shifting some power back to labor. Business owners need to consider how they can best meet their employees’ needs so that they can both retain the workers they currently have and also hire new ones as the economy continues along its road to recovery.
In short: If you want to attract new labor, the script has been flipped. Ask not what your worker can do for you, ask what you can do for your worker.
