Skip to navigationSkip to content
WAGE OF INNOCENCE

The US “labor shortage” is just a wage shortage

A retail store advertising a full time job on its open door in Oceanside, California
Reuters/Mike Blake
The workers are on the way.
  • Tim Fernholz
By Tim Fernholz

Senior reporter

Published Last updated on

The US is coming back from the pandemic recession, and all eyes are on the job market. Some business owners, and in particular restauranteurs, are complaining vociferously about the difficulty they’re having finding workers. So is there a labor shortage?

The short answer is, not really.

The right speed for the employment recovery is simple: as fast as possible. In that sense, anything less than a return to full employment isn’t enough. But in reality, thanks to the unique character of the pandemic recession and the historic magnitude of the US government’s response to it, we are seeing an unusually speedy jobs recovery compared to recent recessions.

The US labor market is recovering

April’s 266,000-job increase was significantly less than desired, but the US also saw 430,000 people return to the labor force—that is, start searching for a job again after giving up on finding one—making for the largest gain in six months. The number of new claims for unemployment insurance fell to their lowest level since March 2020, when the pandemic’s economic impact was first being felt. And the most recent measure of new job openings, from late March, reached a record high of 8.1 million.

There’s always a labor market shortage

It might help to try and define a labor shortage. Let’s call it a situation where the wages needed to hire workers increase at an unsustainable pace, to the point where employers can’t hire workers and remain in business.

The nature of a recession is that it creates job losses and damages the economy. As recovery proceeds, and businesses start hiring again, there is also always a period when it’s difficult to match workers and employers—there are more unemployed workers and more job openings and professional networks are out of date, making the whole process more challenging. After the housing bubble popped in 2008, we were treated to years of talk about a “skills mismatch,” and particularly labor shortages in the building trades—not coincidentally, one of the sectors hardest hit in that recession. Ultimately, what solved the shortage was growing demand leading to higher wages for contractors.

Employers also complained about skills shortages in 2017, when the US economy was humming. As Minneapolis Federal Reserve president Neel Kashkari put it then, “If you’re not raising wages, then it just sounds like whining.”

What about restaurant workers?

There are lots of viral stories about unhappy employers trying to re-open, or pictures of handwritten signs saying nobody wants to work. Restaurants are often at the center of these tales, and not coincidentally, leisure and hospitality workers are the lowest paid of any sector in the US.

What does the data tell us about that sector and its wages? In April, leisure and hospitality was the fast growing sector in the US, adding 330,000 jobs—not exactly the signal of an industry that can’t hire. It was also the sector with the largest increase in pay.

The question, then, is whether the growing wages for leisure and hospitality workers are unsustainable. The answer appears to be: Not yet. The average hourly pay for restaurant workers in April was $15.68; if the pre-pandemic trend of 4% annual growth in these wages had continued in 2020, workers would have started this year earning $15.44. Remember too that this is an average: Many workers will earn less than this number.

Economists will be watching to see if the US Bureau of Labor Statistics’ report for the month of May shows this trend increasing significantly or not, which will help them figure out how sustainable this wage growth is. The Economic Policy Institute, a left-leaning think tank, notes that leisure and hospitality wages make up only 4% of all wages in the economy, which suggests that the sector’s dynamics won’t spread to other industries and create an economy-wide burst of out-of-control wage growth. The average wages of all nonsupervisory employees increased just 1.1% in the last year.

What about unemployment insurance?

A major complaint from employers is that the increase in unemployment insurance (UI) benefits during the pandemic is causing people to stay at home rather than seek work. This remains an open question empirically, and we’ll surely see some interesting studies now that some 23 states are canceling the $300 weekly pandemic bonus, which otherwise expires in September, in an effort to get people back into the labor force.

It’s worth noting, however, that in the most generous states, weekly benefits top out in the low $700s per week. In Oregon, for example, the average UI payment is about $688 a week, equivalent to $17.20 an hour. That’s lower than the average pay of every sector in the economy—except for leisure and hospitality. Also worth noting: Companies can summon laid-off workers back to work, and if they don’t return to their job, their unemployment benefits can be revoked.

One smart idea that deserves more attention is converting the remaining extra UI into a one-time bonus for any unemployed person who gets a job—eliminating the conflict of interest without losing the benefit of increasing demand in the economy while joblessness remains high. Other studies suggest that extending unemployment insurance actually helps people return to employment by giving them time to find the best-matching job.

There’s still a pandemic

It’s easy to forget if you’re vaccinated and fancy free, but half of Americans are not still vaccinated. Many states and counties are still not fully re-opened, notably California, the largest economy in the US. Use of transit and visits to restaurants and hotels have still not recovered to pre-pandemic levels. Research shows that even in states that have relaxed restrictions, people are still behaving cautiously in response to their own estimations of the level of pandemic danger. Texas’ early lifting of all pandemic restrictions, for example, did not lead to more people going to businesses or to higher employment.

Many workers and potential workers are waiting to be fully vaccinated, which for mRNA vaccines can take between five and six weeks. They are also well aware that the US government has no apparent plan to allow businesses to mandate vaccinations, pay their employees to be vaccinated, provide standards for creating a Covid-19 safe workplace, or create reliable credentials to identify people who have been vaccinated.

In labor market terms, we can see this in the April jobs report as well: 4.2 million Americans told government surveyors that health fears kept them from looking for a job, and 9.4 million people said that they were unable to work because their former employers were still closed or offering fewer hours due to the pandemic. That’s nearly the entire gap between pre-pandemic employment levels and today’s.

Workers are people, too

The folks the restaurant industry is looking to hire have their own concerns, which are as legitimate as those of employers. Food service is, as mentioned, low-paying, and notoriously rife with toxic workplaces and tough hours. One thing we’re seeing is pressure for a long overdue increase in benefits and better treatment for workers, while others who can are leaving the industry entirely.

“I lost four really good employees to other businesses that weren’t affected by shutdowns,” one restauranteur told an Oregon newspaper. “I lost a 20-year cook that wasn’t going to tolerate getting laid off anymore. He started painting. I paid him very well.”

Beyond the specific trials of the food service industry, there is speculation that school closings and lack of access to childcare are slowing parents’ return to the workforce. Some economic analysis suggests that parents weren’t disproportionately affected, but 392,000 women left the labor force last month, which other economists argue is a sign that childcare issues are still hindering employment.

The labor market is a market, and that means buyers need to offer the right price. Industries that relied on cheap labor before the pandemic are finding it harder to do so for many reasons, from ongoing pandemic fears, to unsatisfactory wages, to better opportunities in other industries. Focusing on the desire by employers not to compete for workers, or a political agenda of cutting aid to the unemployed, misses the reality that thus far, the system is working the way it should.

📬 Kick off each morning with coffee and the Daily Brief (BYO coffee).

By providing your email, you agree to the Quartz Privacy Policy.