September 26, 2021
What’s Happening in Labor Markets
The monthly state-level employment summary this week reported that Indiana lost 4,200 jobs in August, while the nation as a whole saw a tad more than 250,000 new jobs created. This was worse than the July jobs report, where Indiana picked up a paltry 10,000 jobs out of the 1.1 million created nationally. That’s less than half the job creation rate we should’ve experienced. The national economy is slowing quickly once again due to COVID, and with Indiana’s low vaccine rate, we should be unsurprised by our relatively poor economic performance. Still, it is good to think through the many possible causes of our slowing economy.
Business leaders continue to complain about few applications to open jobs. A trip to any fast food restaurant or retailer confirms their challenge. Still, in the first two weeks in August when this jobs survey was taken, 18,000 Hoosier workers lost unemployment insurance. We should doubt the argument that generous UI benefits are keeping large numbers of workers at home in meaningful numbers. Something else is happening in labor markets.
Many businesses use third-party employment services firms. These services seem to have been slow to adjust to tighter labor markets, and likely spent much of the summer screening out too many workers. It is anecdotal only, but I know a number of college students who received no follow up contact after dozens of applications. If I know a half dozen college kids who couldn’t get an interview for $10-$14 per hour jobs, the problem is likely widespread.
I’m also certain a number of businesses haven’t come to grips with new realities of labor markets. I saw a sign this week for $11 per hour jobs at a fast food restaurant. That seems certain to go unfilled. If businesses offering $15-$20 per hour cannot staff their firms, the $11 per hour job is probably history.
It is also certain that a large number, maybe 5-6 million Americans, have dropped out of the labor force entirely during the pandemic. They will have many reasons from childcare or elder care duties to concerns about contracting COVID. The lost labor force in this recession is already greater than all the previous post-World War II recessions combined. This may be a permanent shock, but we just won’t know until COVID is over. COVID is a long way from over.
There are other factors at work. In the month ending in early August, roughly 7,000 advertisements for remote work were ended in Indiana. I base this on data from a labor market data service my colleagues and I use. The ending of a help wanted ad is viewed as a filled job, though that might not always be the case. If it is, then 7,000 or so Hoosiers took a remote job at the same time employment in the state dropped by 4,200 workers. This has some of the hallmarks of an emerging data interpretation problem.
The monthly jobs report asks businesses about their jobs and workers about their employment status. However, the number of jobs created is based on the business survey. The business survey doesn’t ask where the worker lives, only where the business is located. While the survey is using some questions about remote work, it would still report a job at the business, not the residence of the worker. That means a remote worker in Indiana who is hired by a business in California is recorded as employed in a California job.
Jobs advertisements asking for remote work account for a bit more than 13 percent of Hoosier job ads so far in 2021. That is enough to account for the perception of local labor shortages. Perhaps workers have jobs, but they are online, not at a local business. This seems plausible, but far from certain. If it is true, it reflects a nimble labor market for online work.
COVID job losses were heavily concentrated among less-educated workers. At first blush, it seems unlikely these workers moved quickly into online jobs. Still, online work may have adapted significantly to the excess labor available in the early COVID months. Businesses may have found that many tasks are deeply suited to a human worker, from call center or sales jobs to data simulation requiring humans. This would mean that workers with passable internet service and a home computer could earn a reasonable salary at home.
The new remote work likely has a lot of flexibility, making it especially attractive to workers with childcare responsibilities. As I’ve previously noted, a worker making $18 per hour and paying for childcare and other taxes might be really working for $6 or less an hour. Staying at home and supplementing income with an online job is a very viable option for this worker.
The labor market shocks of 2020 were more disruptive than any time in U.S. history. It stands to reason that we would experience a long-term change in behavior. When we face this type of change, it’s good to go back to first principles in thinking about them.
American labor markets are imperfect, but they aren’t broken. The state or federal government doesn’t owe workers a job at a salary they’d like to earn. Likewise, government doesn’t owe businesses a worker at the salary they’d like to pay. These are markets where services are exchanged for money and other benefits.
In the coming months, many of the current labor market challenges will correct themselves. Some workers will move back into labor markets and discover some positions are not quite worth the salary they thought they were. Businesses who cannot pay enough to hire the workers they need will close, freeing up labor for other businesses. Consumers will have to pay more for some goods or services. Some will do so, while others will spend their money on something else.
We should avoid the temptation to be overly concerned about these sorts of temporary adjustments. People and businesses are acting in ways that make themselves better off. And, in the final analysis, that is how an economy is supposed to work.
About the Author
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