 Welcome to the State of Working America podcast, where we strive to provide a reality check of how workers from all walks of life are impacted by the economy and what needs to be done to address workplace inequalities. Today we're taking on a contentious topic right now, the labor shortage. What we see in the broader economy is not that there are job openings, but employers can't find workers to fill them. It's totally the opposite in that there are way more unemployed workers than job openings. There are just not enough jobs available right now for people who need them. I'm Eve Takinjiolu, I'm the communications director for the Economic Policy Institute, known as EPI, where a non-partisan think-tag focused on leveling the playing field for all working Americans and their families. With the economy finally opening up, many businesses, particularly in the restaurant industry, are saying they can't find enough workers. We're here to figure out the real scope of the problem, and also to shine some light on why health-wanted signs are staying up a little longer lately. Some blame unemployment benefits increased during the pandemic as a key contributor to this shortage, but is the real issue? Did health fears, childcare struggles, many folks going through that, and maybe the lack of good-paying jobs, is it really about a crisis of low wages? One ice cream shop owner in Pittsburgh is a good example of what might be happening. He was having trouble finding enough workers to fill the many openings he had, and his solution? Simple. He raised the shop's minimum wage from $7.25 an hour to $15 an hour, and he got a thousand applications. His store, Klaven's Ice Cream Parlor, was able to fill 16 positions, practically overnight. Those were his words that he shared with a lot of media outlets that were interviewing him about that. To make sense of what's really happening, we have two of the economic policy institutes, labor market gurus, Josh Bivens, EPI's director of research, and Heidi Sherholz, senior economist and director of policy. They wrote a recent piece on the labor shortage, and it provided a reality check on how leisure and hospitality shortages are not pointing to a larger economy-wide problem. And they also stressed that this isn't the time for policymakers to rein in unemployment benefits and stimulus efforts that we've seen during the pandemic. So welcome, Josh and Heidi. I'm so glad that you've joined us today to put this all in perspective, and let's jump right into it. I mean, how big of an issue are labor shortages right now? It's a really good question, and the bottom line answer is we are not seeing widespread labor shortages. We do not see the widespread acceleration of wage growth that you would expect if we were experiencing significant labor shortages. And I just think it's useful to think about why wage growth is the footprint in the data of a labor shortage, and that's just if I'm an employer and I can't get the workers that I need, I will raise wages to attract to poach workers from other employers, and then they will raise wages to retain their workers and on and on. So that's what you see if there is a labor shortage. We are not seeing that in a widespread way, but we are seeing that in some isolated sectors, namely leisure and hospitality. In that sector, over the last few months, we have seen wages accelerate, as leisure and hospitality is reopening more broadly, employers have had to raise wages to attract the workers that they need, but the really important context there, and it sort of gets at this question of are wages and leisure and hospitality too high? The answer to that is just a resounding note. What we have seen in leisure and hospitality is that in order to raise wages, employers have, in order to attract workers, employers have had to raise wages from their extremely low levels that prevailed during the worst of the COVID pandemic. So if you look at what happened to wages and leisure and hospitality, and that's where restaurants are, they plummeted during the worst of the of the recession. They have accelerated in the last three months, but only to roughly what you'd expect them to be if COVID had never happened. So they're not too high. What we've seen is employers have had to increase wages to roughly what they would have been if COVID hadn't happened in order to attract workers as things are more broadly reopening. So we are seeing some of that tightening and leisure and hospitality. But there is no evidence that we are seeing labor shortages be a widespread problem in the labor market. In fact, it's the opposite. What we see in the broader economy is not that there are job openings, but employers can't find workers to fill them. It's totally the opposite in that there are way more unemployed workers than job openings. There are just not enough jobs available right now for people who need them. A lot of the media reports that you hear that are, you know, screaming labor shortages is around leisure and hospitality, restaurants in particular, resort towns. And there's this growing narrative that, you know, it's the lucrative, jobless benefits, the unemployment benefits, keeping workers from, you know, taking these jobs. What would you say to that Heidi? I mean, is that fair in any way? It is. Well, the way I would summarize this is to say, we know for sure that unemployment insurance benefits are not harming the labor market. And you can cut this a bunch of different ways. So one thing we've already covered is that we know, except in potentially in isolated sectors like leisure and hospitality, we are not seeing any sign of a widespread labor shortage. So it's not having any broad effect. The other thing that we can point to is to say, OK, what would it look like if unemployment insurance really were having an effect? One thing we know is that that extra three hundred dollars of unemployment insurance benefits that people who are receiving unemployment insurance get right now, that extra three hundred dollars obviously means a lot more to low wage workers than to high wage workers. But what we have seen in terms of job growth in recent months is that low wage sectors have seen much faster job growth than high wage sectors. And this is exactly the opposite of what you'd expect if you I really were keeping people from working because low wage workers are getting, quote unquote, way more from those benefits than high wage workers. So if you I were keeping people from working, you'd expect to see way less job growth than we are seeing amongst low wage workers. So the data in that way are not signaling that you is a problem. We also know that, for example, in recent months, labor force participation has grown, but it's essentially grown entirely among men, which is given that we know that women still shoulder the lion's share of care responsibilities in the home is sort of signaling that, you know, there's others reminding us that there's other things going on. It's not just you I. We also know there's people have lots of care responsibilities for kids. Many schools remain closed. People are dealing with elderly parents, cares, care, care infrastructure around around dealing with elderly people or workers with or people with disabilities has also faced a lot of crumbling over the course of the pandemic. So that's keeping people out of work. We know that health concerns workers still have a very serious many workers still have very serious legitimate health concerns about COVID. The fact that the CDC has now said that people don't need to wear a mask is like amplifying those health concerns, because if you're not vaccinated and you are a worker, you now don't know if people who come in maskless do have or have not been vaccinated. So there's lots of things that are keeping people out of work that are not about COVID or sorry, that are not about unemployment insurance. So that's really important to keep in mind. And then and then to sort of step back from those points and just really think more broadly about what does unemployment insurance really do? I think it is worth noting that many leisure and hospitality jobs, any jobs in face to face services have become far harder and riskier since COVID happened. And the thing about that is that in a well functioning labor market, a well functioning labor market would account for that by offering higher wages. But the thing is we know that the low wage labor market is not always a well functioning labor market and that wages that low wage employers typically have a lot of power to suppress wages. And so here's where if UI is coming in is playing some role, however minor and making it so workers aren't so desperate that they have to take any job they can get even at very suppressed wages. That is what economists would call efficiency enhancing. The UI benefits in that regard are actually making the labor market run better. So sort of all of those different dimensions, the unemployment insurance are getting it's getting benefits to people who either can't work or can't find work right now, getting stimulating the economy by by making sure those people's they are spending is maintained and is actually helping the labor market run a little bit more efficiently right now. So it's it's not damaging the labor market. In fact, it's totally the opposite. Well, thanks, Heidi, for busting that UI benefits myth. And for those of you who don't know UI unemployment insurance, benefits is what we're talking about. No, that's fine. That's fine. So if we do start to see some tightening, serious tightening in the economy, you know, that often leads to inflation concerns. Lately, we've been hearing a little bit about inflation rearing its head. But should we be fearful of that, Josh? Is that an issue now or something we should be looking for? So it's definitely not an issue now. I mean, I would say price inflation that is driven by like really broad based wage growth that is too fast, wage growth and economy wide productivity growth for a really long period of time. That's definitely one thing macroeconomic policy makers could leave the Fed worry about appropriately. It's the thing that would force interest rates, spending and down pressure on employment. And that's the Federal Reserve. Yes, that's right. Federal Reserve. Essentially, the Fed is always trying to balance the benefits of ever lower unemployment and higher pressure labor markets against the risks that these high pressure labor markets really low unemployment can generate access wage growth and eventually lead to price inflation. But for way too much of recent decades, macro policy makers and the Fed have gotten this trade off really badly wrong. They've either engineered or tolerated unemployment rates really far in excess of what's needed to keep inflation tame. On coming years, what we need to see is a lot of forbearance from the Federal Reserve. Switching from a regime where they basically say we're going to stop on inflation before it even happens. We're going to get ahead of the curve and raise rates before inflation is even in the data instead of thinking about this in terms of we're going to take on some risk, we're going to tolerate some periods where prices and wages are actually growing kind of fast because we think that'll be transitory, we think the benefits of the really low unemployment and the better bargaining power will be large for workers. And I think that's the regime they're taking steps toward to their huge credit under Ben Bernanke and then Janet Yellen and now Jerome Powell. There's just been an increasing willingness of Fed allies that may have probably let unemployment be too high for too long and they're actually going to take on a little bit of risk because it's been decades since we've seen a problematic period of inflation. So I think that sort of change and how they approach things is super welcome. Right. You know, looking at what's actually happening when you look at the data is so important, but given these reports lately about shortages and the hype that's going on for inflation, some states have already started to pull back on unemployment benefits, their calls to pull back on stimulus proposals and plans on the federal level, including the American Families Plan, the American Jobs Plan. With that, why would that be a mistake right now, Heidi? That would be a huge mistake. So it is terrible economics. I'll focus on the fact that we have, I think as the latest count is 23 states who said they are going to turn down the pandemic unemployment insurance benefits. So those are the insurance benefits that the Congress stood up just to address joblessness in this in this pandemic. So they include the pandemic unemployment insurance, which expand unemployment insurance benefits, eligibility for unemployment insurance to people who fall through the cracks of our regular unemployment insurance system, like gig workers. And there's also another program that adds additional weeks of benefits because our normal state programs have their very limited number of weeks that people can get. And then there's the additional three hundred dollars that people can get in in addition to their sort of benefits that are calculated through normal formulas. You can also get you also get an additional three hundred dollars on top, which makes up for the fact that our benefits under regular formulas are extremely stingy. We do not have we do not have a kind of safety net that works really as far as unemployment insurance goes that's strong enough, even in normal times, but it is absolutely not strong enough when we're facing elevated unemployment like we have during this period. The one of the things about all those extra programs is that they're fully funded by the federal government. States are not funding those programs. The idea that a state would turn down that money, they would say, ah, we just don't want that when we know that those benefits are helping people who can't find work or can't work right now because of the pandemic that and so it's it's not just making sure those folks don't drop into poverty, that they don't see their living standards really plummet because of the lack of available jobs right now. It is also helping sustain state economies because that money, that federal money coming in, that people who are getting those benefits can then spend in their state is a big stimulus to those states. So the idea that state governors would say, we don't want that money right now, we don't want those benefits, we prefer to have our folks see their benefits cut off, even if they're unable to find jobs, just pulling, spending out of the economy. It's just it's terrible economics. It really is a lose, lose, lose, lose. It's it's it's just extraordinarily bad decision on the part of these governors. And it seems like, you know, governors are worried about, you know, an impending crisis, whether it's inflation or, you know, creating a labor shortage that's unattainable. Are we really talking about a crisis of low wages when it comes down to it, Josh? Just to circle back to the other issue just really quickly, I think. One thing that's really important is that we were talking about people are talking about the restaurant sector as the alleged labor shortage happening in the economy, it did be really clear. It's not a labor shortage that is impinging on job growth. Like, yes, wages rose fast, but so did employment. It was by far the best in terms of job growth the month of April. Like, if the rest of the economy had performed as well as the restaurant sector in April, like relative to their sizes, we would have gained like eight hundred and fifty thousand jobs in that. So it's one thing to worry about a labor shortage. But when it's a labor shortage that is not stopping employment growth at all, that just means you're worried about high wages. That just means you're deciding to weigh in on the side of restaurant owners. That is what they are doing because the labor shortage isn't stopping job growth. All it is is forcing weight up. I see fast job and fast wage growth and I think that just sounds great. But is that a crisis? Why do we want to stop that? So I think that's one way to look at what the governors are doing. It's doing what honestly what conservative policy makers have done for far too long, which is they do what employers want them to do to keep wages low and anything that might be providing any more work to workers leverage, they're going to try to take out. And you mentioned like the lack of bargaining power for workers, but then that goes back to that has created again a crisis of low wages. Yeah, the way I would think about this is I think we have a long run crisis of low wages in this country that was with us well before the covid shock. I'm not positive how much it intersects right now with the current economic situation because at the moment there's no real crisis like the growth is doing really well in the low wage sectors and wages are starting to rise. I would say basically, I don't think the restaurant sector is either in crisis. It's just having fast wage growth and fast employment growth. That's great to me. And it's not really indicative of the broader economy. And honestly, to be super blunt, I think many restaurant jobs were really bad before covid and yet they were able to staff up because American workers have been so disempowered. I don't think a ton has changed, except the jobs have gotten a bit worse for all the ways that Heidi mentioned before, safety concerns. So my side, I don't think these past couple months are going to be indicative of what happens in the future in terms of being able to demand much higher wages, unless we really do a lot more on the policy front, both walking in sort of a rapid macroeconomic growth the way we're trying to do, but then doing a bunch of other really fundamental policy changes, whether it's a fifteen dollar middle wage or labor law reform. And a microcosm of what you're talking about when it comes to rising wages and more opportunities is that ice cream shop at Pittsburgh, right? They've hired 16 people. They raise the wage to fifteen dollars and things are working out. So when we look ahead and you know, these folks looking for jobs right now that are thinking, oh, wages are growing up. What can workers expect then in the next few months? I mean, is this a time to be bargaining with employers or are you going to hit that same wall as it depended on the employer, of course? But Heidi, what are your thoughts on what we might be seeing in the next few months, maybe the next year? I am rarely an optimist or I have been I have had little reason to be a super optimist when it comes to the labor market and much of my career. But I am super optimistic right now that we will see really strong wage growth in coming months, I think with the distribution of the vaccine, with the economy really reopening more broadly now. I just I feel and and the fact that the Biden administration and Congress passed that relief and recovery act, which meant that we've sustained the incomes of people so that as the economy reopens, they're going to be able to spend more money as we've we've filled in gaps that state and local government saw revenue shortfalls during the during the recession and Congress stepped in with state and local aid to make sure they don't become a huge drag on the economy. So I feel really good. And this is all barring a vaccine resistant strain of the virus that could set us back to square one. If we don't have that, I really feel good about employment growth going forward. Then there's this question of what's going to happen with wages. And I would quickly circle back to what Josh said. I think there's there's been conversations right now. Are we seeing a big realignment of work? I don't see it unless we have this big policy push, unless we do see we know that policy has played a really crucial role in creating an economy that we over the last four decades, where most of the growth goes to just a thin slice of people at the top, we're working people were low and middle income workers don't see by any stretch their fair share of the gains. That's going to take a big organizing and policy push to reverse that. So just like what Josh said, things like we need to implement policies that will reverse the long run decline in unionization. We need to raise minimum wages and other labor standards. We need to make sure that Federal Reserve keeps doing what they have been doing recently in making sure the unemployment rate is as low as possible. So those kinds of things are the sort of the crucial things going forward to make sure that our economy that the recovery is not just about getting jobs back, but it's also an equitable recovery where we see wage growth continue or where the growth that we see in the recovery isn't just captured by the people at the top, but also is shared by by regular working people. So it's something to for workers to be pushing their policymakers to do as well. Josh, is there anything that you really hope policymakers do focus on something that workers can inspire their legislators to do going ahead? I mean, a whole bunch of things, I would say one, like Heidi said, just stay the course on the macro policy approach. Then I think they should besides the sort of institutional labor standards and bulwars that help bargaining power like I'm an environmental wage and labor over. They need to focus on the things that make people's economic lives are obvious examples is the investments in care work that are part of the American job plan. We know one of the things that makes people's economic lives really hard is the need to look after older relatives when they need care. Incredibly expensive and time consuming. That is something a public social insurance program could help enormously. It should stay in the American jobs plan. It should be passed similar sort of arguments for child care and then arguments for green investments. So as important as managing the business cycle and keeping unemployment low is is unbelievably important. There's still many other things you need to do to make people's economic lives better and policymakers should get on that as well. That's great. Thank you so much. Anything else? Heidi, do you want to add? I think so. I feel like there's always there's always a million things to talk about, but that sort of felt like a nice complete discussion. Yeah. Yeah. And you know, it's it sounded hopeful. So you know, you put some perspective on the hype with hope. So thank you to both of you. Josh and Heidi, thanks so much. Josh Bivens and Heidi Sherholz joined us from the Economic Policy Institute where Josh is the Director of Research, Heides, Senior Economist and Director of Policy to hear more of EPI's podcast. Go to epi.org backslash podcast. Also make sure to read our latest research by going to epi.org and follow us on social media for to find out about new podcasts and a whole lot of other stuff at at Economic Policy. Thank you so much for joining us.