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The Labor Shortage

Copyright © 2021 by David E. Ross

As the United States begins to recover in 2021 from the economic impact of COVID-19 and businesses reopen, employers find it difficult to obtain sufficient employees. This is slowing the recovery. It is also impacting supply chains and leading to shortages of certain consumer goods, which in turn is fueling inflation.

Republicans point to unemployment benefits as causing the labor shortage. They claim that people receive a higher income from those benefits than they could earn by working. This is just plain false. Unemployment benefits are never sufficiently generous to replace what a worker was earning at a job.

Economists have identified at least three major causes of the labor shortage:

Employers Earned Negative Reputations

During the pandemic, some employers proved to be abusive. The following lists only some of the abuses.

• Those who could productively work at home were nevertheless required to be at their normal places of work. They were thus exposed to infection by COVID-19.
• Employers strictly limited paid sick-leave or simply did not provide that benefit. Those who were contagious with COVID-19 thus infected their co-workers because they could not afford to live without working.
• Not all work could be done remotely. However, employers failed to provide appropriate protection against infection for on-site workers.
• Layoffs caused employee benefits — especially health insurance — to be terminated.
• Corporate executives proudly claimed they were cutting their own salaries while they laid-off lower-level employees and cut the salaries and wages of those employees that were retained. However, filings with the Securities and Exchange Commission (SEC) revealed that total compensation for executives actually increased through bonuses and stock options while their employees suffered.
• A new abuse arising as the economy recovers from the virus affects those who have been working from home. Although they remain fully productive, their pay is being cut. Employers have decided to pay work-at-home employees according to their living costs — no commuting, lunching at home, no business-appropriate clothing, etc — instead of what they are worth to the company. Effectively, high-value employees are being devalued if they work from home. Furthermore, how is a company to determine living costs without excessively invading its employees' privacy? Will a single employee now be paid less than a married employee with three children while both are equally productive?

Abusive employers now wonder why they cannot attract workers to replace those who they laid-off and those who died in the pandemic.

Workers Realize They Can Be Choosy

As employers began to recruit workers, workers realized that they do not have to accept the first offer of employment. They have the ability to choose employment that is most optimal for them. They can negotiate wages and salaries. They can compare benefits from multiple offers of employment.

A Shrinking Workforce

Out-of-work seniors discovered their living costs are lower without commuting, buying lunch, needing to buy uniforms at their own cost, et cetera. They already accumulated some savings towards retirement and decided retirement is now. A persistently low birth rate in the United States means fewer new workers are entering the job market to replace retirees.

This was made worse when President Trump reduced legal immigration, thus reducing another supply of workers. It should be noted that Japan's decades-long economic malaise results from the same situation. Germany also has a low birth-rate and an aging, retiring population; that nation, however, mitigates the problem by encouraging immigration.

12 July 2021
Updated 13 August 2021

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